IFM40235 - Eligibility criteria: ownership condition: further examples
FA22/SCH2/PARAS 4 to 7
Below are further examples of ‘relevant interests’ in QAHCs.
6. The AHC is 71 percent owned by a qualifying fund and 29 percent owned by non-category A investors. One of the non-category A investors also holds a 10 percent interest in the qualifying fund.
The AHC would not qualify to be a QAHC. It has 29 percent direct non-category A investors, but PARA 4(1)(b) will require the non-category A investor that also owns 10 percent of the fund to aggregate that interest with their direct interest.
PARA 4(1)(b) deems the indirect interest to be a relevant interest meaning that it gets taken into account in the PARA 3 tests. Non-category A investors therefore hold relevant interests in the AHC of 29 percent plus 7.1 percent (10 percent x 71 percent) totalling 36.1 percent, which is greater than 30 percent.
7. As per example 6, but instead of the non-category A investor also owning 10 percent of the fund, it is the non-category A investor’s spouse that holds a 10 percent interest in the qualifying fund.
Again, the AHC would not qualify. The spouse is connected with the directly investing non-category A investor, so PARA 4(3) will aggregate the two interests. The total relevant interests of non-category A investors in AHC would be 36.1 percent, as in example 6.
8. The AHC is 71 percent owned by a qualifying fund and 29 percent owned by Company C, a non-category A investor, which is owned by non-category A investors. The spouse of one of such non-category A investors holds a 10 per cent interest in the qualifying fund.
Whether or not Company C is connected with each of its shareholders is a factual question, determined for the purposes of CTA10/S1122 as modified for these purposes.
On the assumption that Company C is treated as connected with each of its shareholders, each non-category A investor in Company C would hold their interest through a company other than a QAHC that is connected to them within PARA 4(1)(b). That would, in turn, mean that the shareholder in Company C whose spouse has an investment in the fund would have to treat the spouse’s interest as their own relevant interest.
PARA 4(2) disregards the interests of the various non-category A shareholders which they hold via Company C. This prevents a double count, since Company C is itself a non-category A investor. However, the spouse’s interest in the qualifying fund is not disregarded because it is not an entitlement through Company C, as required by PARA 4(2).
In consequence, the total of the relevant interests of non-category A investors in the AHC is 36.1 percent as in examples 6 and 7, and so the AHC would not qualify to be a QAHC.
The position would be unchanged if Company C was the parent of another company, Company D, which in turn held the stake in the AHC. In this case, the non-category A investors would still be beneficially entitled to the profits or assets of the AHC through a connected Company D that is directly interested in the AHC within the meaning of PARA 4(1)(b). The fact that the entitlement is also through another company does not prevent PARA 4(1)(b) applying.
9. The AHC is owned by a category A investor and non-category A investor. The category A investor holds 80 percent of A shares, and 65 percent of B shares. The non-category A investor holds 20 percent of A shares, and 35 percent of B shares). The A shares entitle holders to profits arising from UK equities held by the AHC, while the B shares entitle holders to profits arising from non-UK equities.
Each class of shares issued by the AHC confers entitlement to a greater proportion of profits or assets of a particular class than the other, so each class of profits or assets is therefore an enhanced class. This is because the A shares confer rights in relation to UK equities when the B shares do not, and vice versa in respect of non-UK equities.
In consequence, relevant interests must be determined in relation to each enhanced class separately. If non-category A investors have relevant interests in either class exceeding 30 percent, the AHC would not qualify to be a QAHC. This is the case, because the non-category A investor has a relevant interest of 35 percent in the class of non-UK equities and any profits deriving from them.
The analysis is not affected by the relative values of the two classes of assets. The AHC would not qualify even if its holding of non-UK equities is extremely small relative to its holding of UK equities.
