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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: company reconstructions: tests of ownership

CTA10/S941 and S942

For purposes of CTA10/S940A common ownership of a trade can be established by looking at the owners of a company’s ordinary share capital. Ordinary share capital in relation to a company is defined at CTA10/S1119. It means all the issued share capital of the company, no matter what name(s) the issued share capital has. But it does not mean capital whose holders have only a right to a dividend at a fixed rate, but have no other right to share in the profits. The ownership of shares has to be beneficial ownership. There is guidance on this at CTM06030.

A trade that is owned successively by two companies is not owned by the same person or persons. However, CTA10/S942 looks at the owners of the ordinary share capital of each company. The interest in the trade carried on by a company is then determined by reference to the proportion of the ordinary share capital held by a person in the predecessor and successor companies.

Ownership of a trade is established when any one of the following tests is met. The tests are that the trade belongs to:

  • the company which carries it on (CTA10/S941 (1)), or
  • the holders of the ordinary share capital of the company carrying it on (CTA10/S942 (1) Option 1), or
  • the parent of the company carrying on the trade (CTA10/S942 (1) Option 2 (a)), or
  • the holders of the ordinary share capital of the parent (CTA10/S942 (1) Option 2 (b)), or
  • the person or persons who by voting power, or other means, can direct or control the affairs of a company which directly or indirectly owns the ordinary share capital of the company carrying on the trade (CTA10/S942 (1) Option 3).

The common ownership condition in CTA10/S940 is met if:

  • there exists a common 75 per cent interest under any combination of these ways,
  • within the three-year time span set out at CTM06010.

CTA10/S942 (2) and (3) sets out what is meant by ‘parent’ and ‘subsidiary’ for the purposes of these rules.

CTA10/S941 (7) and (8) requires that relatives are treated as a single person when determining ownership. ‘Relative’ for this purpose means:

  • husband
  • wife
  • civil partner (with effect from 5 December 2005)
  • ancestor
  • lineal descendant
  • brother, or
  • sister.

It does not include relatives of relatives.

If a person is entitled to income of a trust, that person’s shareholding is treated as including shares held by the trust (CTA10/S941 (7) (a)).


Ownership by a group of persons

Common ownership may be established by reference to the holding of a group of persons. In this case there is no requirement that the interest of the members of a group of persons in the predecessor and successor companies should be in the same proportions.


Example 1

Colin owns 80 per cent, and Brenda owns 20 per cent, of Company D, which has a trade of plumbing. Company C takes over the plumbing trade from Company D. Colin and Brenda each own 50 per cent of Company C, the successor company.

There is common ownership of the trade because the same set of persons owns not less than 75 per cent of both companies.


Example 2

Company V is a predecessor company and Company E is a successor company. Each has issued share capital of 100 ordinary £1 shares. The shareholdings in both companies are set out below.

###   ### Company V ### Company E
Smith 50 10
Jones 15 30
Mr Brown 10 30
Mrs Brown   5
Hall 25  
Crisp   25
Total 100 100

The 75 per cent test is satisfied. Mrs Brown’s 5 per cent shareholding in the successor company is aggregated with that of her husband who together with Smith and Jones owns 75 per cent of both companies. So the same set of persons owns not less than 75 per cent of both companies.