CFM96240 - Interest restriction: related parties: 25% investment - attribution of rights and interests: connected persons

TIOPA10/465(1)-(2)

The definition of 25% investment looks at the level of investment P has in an entity. This does not just include rights and interests held solely by P, however, and also takes into account rights and interests held by certain other people which are attributed to P.

Connection is one of three ways in which rights and interests are attributed to P. Under this rule, P is taken to have all the rights and interests of:

1. Any person connected with P,

2. Any person who is a member of a partnership, or is connected with a person who is a member of a partnership, of which P is a member, or

3. Any person who is a member of a partnership, or is connected with a person who is a member of a partnership, of which a person connected with P is a member.

The meaning of connection is given by CTA10/S1122, with the exception that subsections (7) and (8) are dis-applied. Connected persons include, for example, spouses and their close relatives, close relatives (brother, sister, ancestor or linear descendent) and their spouses, and companies under common control.

A person is not regarded as connected with another person simply because a normal commercial loan has been made between them.

Example

A Ltd and B Ltd are both controlled by the same person which means they are connected (section 465(1)(a)) and A Ltd will therefore be attributed the rights of B Ltd.

B Ltd is also in a partnership with Y Ltd. A Ltd will also be attributed the rights of Y Ltd (section 465(1)(c)) because it is a member of a partnership of which a person connected with A Ltd (B Ltd) is also a member.

A Ltd would also be attributed the rights of any person connected with Y Ltd, for example its wholly owned subsidiary.