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HMRC internal manual

Capital Gains Manual

Close companies - definition of control and Extra-Statutory Concession D40

TCGA92/S96(10) and ESC D40

The definition of control in TCGA92/S96(10) invokes the definition in CTA10/S450, see CTM60210. The definition of control that will apply most frequently in practice is ability to control the greater part of the company’s share capital.

TCGA92/S96(10) 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. Capital payments received by the company will be treated as received by the beneficiary in accordance with the rules described in CG38680.

TCGA92/S96(10)(a) attempts to reduce the impact of this by providing that rights and powers are not attributed to an associate unless that associate is themselves a participator in the company. This is of limited application because TCGA92/S96(10)(b) 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 section 92 a beneficiary of the settlement is not treated as a participator solely because he or she is a beneficiary. The concession also applies to TCGA92/S86, CG38510.