SDLTM23082 - Reliefs: Group, reconstruction or acquisition relief
Withdrawal: Occasions when relief not withdrawn - subsequent transfer of purchaser following vendor leaving group
Change in control
Paragraph 4AZ (5) of Schedule 7 states that there is a change in control of the purchaser if:
a) a person who controls the purchaser (alone or with others) ceases to do so,
b) a person obtains control of the purchaser (alone or with others) or,
c) the purchaser is wound up
Paragraph 4ZA (8) of Schedule 7 provides that any references to control are to be interpreted in accordance with section 416 of the Taxes Act 1988.
This defines control as:
- Control over the affairs of the company
- Control through voting power
- Control through share capital or through issued share capital
- Control over income of the company
- Control over the assets of the company
Further information concerning control is available at CTM60200+
Circumstances where HMRC consider there has not been a change in control.
Appointment of a liquidator
The appointment of a liquidator results in a company losing its beneficial interest in its assets, including any shares in it owns in other companies (Ayerst v C&K Construction) Ltd 50 TC651.
Without special provision, the commencement of a winding up of a holding company within a group would result in the breaking up of a group. This may present difficulties for groups undertaking genuine reorganisations.
To address these concerns HMRC will not view the appointment of a liquidator as resulting in a change of control of a company for the purposes of sub-paragraph (5) (b), provided that the liquidation can be shown to be part of a scheme of reconstruction which involves a successful claim to a further relief or where the economic ownership of the relevant assets remains within the group.
New intermediate holding company
Sub-paragraph (6) provides that a change in control does not arise where a new holding company is inserted either between the original ultimate parent company and its shareholders, or between the purchaser and the parent company with no change in overall economic ownership of the group. This is because HMRC will look at the ultimate shareholding in order to establish whether there has been a change of control.
Loan Creditors
Sub-paragraph (7) provides that where there is change in control of the purchaser because of a loan creditor, then group relief will not be withdrawn if the persons who controlled the purchaser before that change continues to do so. This ensures that difficulties will not arise in relation to the introduction of loan creditors, which may otherwise have impacted on the ability of a group to organise its financing in a commercial manner.
Share Transactions in quoted companies
The Economic Secretary to the Treasury made the following comments during a debate in Parliment in response to concerns that HMRC might constue the meaning of change in control so widely that the change in one shareholder in a quoted company might be seen as a change in control.
''Similar concerns were raised in relation to reconstruction relief. I can confirm that we intend to take the same approach that if control of a publicly owned company changes as a result of an ordinary market transfer of its shares there will be no recovery, because we do not intend to interpret change of control so widely that simple day to day transactions between unconnected minority shareholders in the stock exchange could trigger a claw back'' (see Hansard 6 June 2008, column 521)
Partnerships / private equity
Where the purchaser group's majority shareholder is a partnership a claw back of group relief would arise if a partner leaves the partnership or a new partner joins, however small the relevant partnership interest involved. This is due to the wording in s416(6) which, coupled with the provisions of s417(3)(a) ICTA88, means that each individual partner controls the group in its own right for 416 purposes, since the rights of all partners are attributed to each other.
However, for the purposes of this legislation the rights or powers held by partners will not be attributed. In addition any changes in the general partner will also be disregarded for the purposes of estblishing whether there has been a change in control.