CTM36830 - Particular topics: transactions in securities: excluded circumstances

The transactions in securities provisions will not apply where there is a “fundamental change in ownership” of the close company as described in ITA07/S686. This provision is aimed at ensuring that certain common transactions in securities are not caught by these anti-avoidance provisions.

For transactions occurring before 6 April 2016:

There is a fundamental change in ownership if, as a result of the transaction or transactions, conditions A, B and C are met for a period of two years.

Condition A – at least 75 per cent of the ordinary share capital (see CTM00511) of the close company is held beneficially by any number of persons who are not connected with the seller, and have not been connected during the two year period prior to the transaction.

Condition B – that capital must carry an entitlement to at least 75 per cent of the distributions that may be made by the company.

Condition C – that capital must carry at least 75 per cent of the voting rights in the company.

Where all these conditions are satisfied the anti-avoidance legislation will not apply

ITA07/S993 and S994 set out the meaning of connected person.

For transactions occurring on or after 6 April 2016:

There is a fundamental change of ownership if, as a result of the transaction or transactions, the original shareholders, taken together with their associates or persons under their control, do not hold more than 25% of either:

  • the ordinary share capital, or
  • the entitlement to profits as a result of holding shares, or
  • voting rights as a result of holding shares

in the close company.

The original shareholders are all those who held any ordinary share capital of the close company immediately before the transaction(s).

Note that for this purpose “associate” has the definition appearing at ITA07/S681DL, but also includes as persons associated with each other, a person as trustee of a settlement and an individual, where one or more beneficiaries of the settlement are connected or associated with the individual.