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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Conditions and Tests: maximum shareholding: meaning of direct and indirect control of voting rights


The definition of a holder of excessive rights (HoER) in regulation 1(2) SI 2006/2864contains the terms ‘control’, ‘directly’, ‘indirectly’ and‘beneficially entitled’. None of these are defined specifically for thispurpose. See GREIT02115 for the definition of‘company’ and meaning of ‘beneficially entitled’. HMRC will interpretthe other terms consistently with that. Some examples are set out below. In them, C isUK-REIT and A is a company that may be a HoER.

Control of voting rights

None of the Taxes Acts definitions of control is directly applicable here. This isbecause those definitions apply only for specified purposes, and are generally defined inthe context of controlling a company, rather than controlling voting rights in thecompany. In this context, someone controls the voting rights if they have the power tocheck, restrain or govern how the votes are used.

Because the normal Taxes Acts definitions of control are not picked up, the meaning heredoes not therefore pick up the concept of associated and connected persons that applies aspart of the section 416 ICTA definition for ‘close’ company purposes. Nor does it pick upcontrol as a result of entitlements to acquire rights in the future. The meaning is moreakin to the concepts in section 840 ICTA of effective power to control.

Indirect control of voting rights

This might exist where shares in C are held by an intermediate entity, such as anothercompany or a trust, over which A has control – and can therefore direct how theintermediary exercises votes. For example, A owns 8% of the shares in C, and A also owns100% of the shares in company B, which in turn owns 4% of the shares in C. A owns directly8% of the shares in C, and controls 4% indirectly. A would therefore control, directly andindirectly, 12% of the shares in C.

Company X owns 9% of the shares in C. X also owns 30% of Company Y, which in turn owns 4%of the shares in C. X owns directly 9% of the shares in C, but because X is unlikely toable to direct how Y exercises its votes in respect of C, X’s proportion of thevoting rights attached to the 4% of shares owned by Y do not count as indirectly held byX.