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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Close companies: loans to participators: acquisition of control of company

CTA10/S460 (3) may apply, subject to CTA10/S461 (CTM61740), where a close company acquires control of a company which has previously made a loan that had not previously been chargeable under CTA10/S455 (1). As soon as the close company takes control, the loan is chargeable under CTA10/S455. Treat the loan as if the close company had made the loan immediately after the time when it acquired control.

If, at the time the loan was made, another close company controlled the company, you should submit the case to CTIS (Technical) with the file before making an assessment. For the definition of ‘control’ see CTM60200 onwards.

CTA10/S460 (3) was designed to counter a particular avoidance scheme, which had been widely used. It usually took the following form.

A close company, Company X, had surplus funds which it wanted to pass to shareholders without producing IT liability (on a normal distribution), CGT liability (on a distribution in a winding-up) or CTA10/S455 liability (on a loan).

The shareholders in Company X borrowed the desired amount from unconnected Company Y.

For added protection Company Y - the lending company - would usually not be a close company, for example it could be a specially formed subsidiary of a UK or non-resident bank or finance company.

Shortly after the loan was made, Company X used its surplus funds to buy all the shares in Company Y. Company X could then ensure that the loan remained outstanding indefinitely.

Without Section 460 (3), the loan would not be chargeable under CTA10/S455. The borrowers would not be participators in the lending company when the loan was made.

Section 460 brings this arrangement within the charge.