INTM600830 - Transfer of assets abroad: The income charge: Transfers made by closely-held companies - qualifying interest

INTM600825 explains the background behind the new legislation enacted to bring within the scope of the income charges (see INTM600520) transfers made by closely-held companies. HMRC wanted to give clarity to individuals as to when they would fall to be charged under ITA07/S720/S727 in respect of transfers made by closely-held companies. The individual potentially subject to a charge under ITA07/S720/S727 in respect of transfers made by a closely-held company must have a qualifying interest in that company.

ITA07/S720A(3) and ITA07/S727A(3) set out when an individual has a qualifying interest in a closely-held company.

An individual will have a qualifying interest if the individual, or a nominee of the individual, is a participator in

  • the closely-held company, or
  • the first company within a chain of closely-held companies.

ITA07/S719A sets out the meaning of nominee of the individual. A nominee in relation to an individual means a person

  • who possesses power or rights on behalf of the individual, or
  • who may be required to exercise any rights or powers on the individual’s direction or behalf.

Participator takes the same meaning as in CTA10/S454 and further guidance can be found at CTM60100. However, where a beneficiary has a life interest in a trust that is a shareholder in a closely-held company making a transfer, they would not be treated as a participator for the purposes of this legislation.

A closely-held company is defined in ITA07/S719A as

  • a close company as set out in Part 10 of CTA 2010 (see CTM60060), or
  • a non-UK resident company that would be close if Part 10 CTA10/S442 were ignored.

An individual’s qualifying interest in a company was defined within the ToAA statute based on the concerns expressed by the Supreme Court in Fisher regarding the precise circumstances in which it would be possible to treat an individual as having procured a transfer made by a company. For example, in the absence of any definition of control within the ToAA statute, the courts did not look favourably on treating controlling shareholders as procuring a transfer and there was no certainty on what size of shareholding would be required for an individual to have procured a company transfer.

Example

X Ltd is a UK resident close company. Maria is one of three shareholders in the company. Maria would therefore have a qualifying interest in X Ltd.

X Ltd holds shares in Y Ltd. Y Ltd also meets the definition to be a closely-held company. Maria therefore would also have a qualifying interest in Y Ltd.

Maria transfers her shares in X Ltd to Johan to hold them on her behalf under a nominee agreement. Maria would still have a qualifying in interest in X Ltd and Y Ltd.