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HMRC internal manual

Capital Gains Manual

Property provided by companies - Extra-Statutory Concession D40

TCGA92/Sch5/para8(8) and (9) and ESC D40

The definition of control in TCGA92/Sch5/para8(8) also applies the attribution rules in CTA10/S451, see CTM60140. Section 451(4) provides that in applying the tests in section 450 all the rights and powers of a person may be attributed to an associate or associates of that person. Therefore if the trustees control a qualifying company their rights and powers will be attributed to their associates and those associates will also be treated as controlling the company.

The definition of associate is in CTA10/S448, see CTM60150. The trustees of a settlement that owns shares in a qualifying company will be an associate of a life tenant of the settlement, see s448(1)(d), CTM60150 second paragraph and CTM60160. That means that without some modification the life tenant will be treated as controlling the company. Any property provided by the company will be treated as originating from the life tenant and the life tenant may be regarded as the settlor and be liable to section 86.

Paragraph 8(8) attempts to reduce the impact of this by providing that rights shall not be attributed to an associate unless that associate is themselves a participator in the company. This is of limited application because paragraph 8(9) applies the definition of participator in CTA10/S454, see CT60107. Section 454(2)(c) provides participator includes “any person who possesses a right to receive or participate in distributions of the company”. This will include a life tenant because they are entitled to any distributions made by the company.

This could mean that a life tenant would be treated as controlling a company in which they had no other interest. Extra-Statutory Concession D40 prevents this. It provides that in applying the provisions of paragraph 8 a beneficiary of the settlement is not treated as a participator solely because he or she is a beneficiary. The concession also applies to other paragraphs of Schedule 5. See CG38475 and CG38525.