CTM36822 - Particular topics: transactions in securities: condition A

For transactions occurring on or after 6 April 2016 “the person” below can be any “relevant person” (see CTM36820)

Condition A is met where, as a result of the transaction or any one or more of a number of transactions, the person receives relevant consideration in connection with

a. the distribution, transfer or realisation of assets of a close company, or

b. the application of assets of a close company in discharge of liabilities, or

c. the direct or indirect transfer of assets of one close company to another close company, and

the person does not pay or bear Income Tax on the consideration.

Relevant consideration – condition A

Where a. or b. above applies the relevant consideration is that which

  • is, or represents, the value of assets
    • which are available for distribution, or
    • which would have been available for distribution apart from anything done by the company, or
  • is received in respect of future receipts of the company, or
  • is or represents the value of trading stock.

Assets for this purpose do not include amounts which are shown to represent a return of sums paid by subscribers on the issue of securities. To the extent that the assets can alternatively be shown to represent a return of distributable profits, for example where there are distributable reserves in the profit and loss account, this exclusion is unlikely to apply.

Example:

  • Holding company A Ltd reduces its share capital by £1m and pays that amount to its members.
  • At the time of the reduction in share capital it has distributable reserves of £2m.

Here the whole £1m may be relevant consideration because the money used to make the payment can represent distributable reserves as an alternative to subscribed capital, although sometimes it might be demonstrated that such a return represents subscribed capital only.

Where c. above applies, the relevant consideration is defined as for condition B – see CTM36823.