IFM40220 - Eligibility criteria: ownership condition: FA22/SCH2/PARA4

PARA 4 sets out the kinds of interest which can constitute ‘relevant interests’.

An interest will always be a relevant interest in a company if it is direct (that is, the interest holder owns securities conferring the interest that are issued by the company in question). An interest held through a partnership or other entity seen as transparent by UK tax rules will also be regarded as direct, unless that partnership is a transparent qualifying fund.

Indirect interests can also be relevant interests in more limited circumstances. Where the interest is held indirectly and solely through one or more QAHCs, it will be a relevant interest. So, where a parent QAHC has a subsidiary, holders of relevant interests in the parent will also have relevant interests in the subsidiary.

Additionally, there is an anti-fragmentation rule within PARA 4. This operates to aggregate the different interests of a direct investor in a company with indirect interests via, for instance, a fund that is treated as a person for the purposes of the determination of relevant interests in that company.

For example, if an individual owns 20 percent of a company directly but also owns another 5 percent via a qualifying fund which owns the other 80 percent of the company, that individual is to be regarded as having a relevant interest of 25 percent (that is, the aggregate of their direct interest of 20 percent and their indirect interest of 5 percent).

In addition, PARA 4(1)(b)(i) prevents the rule being circumvented by an individual setting up a company or companies to hold their direct interest. Where a company with which a person is connected holds a direct interest in a potential QAHC, that person is potentially within the scope of the anti-fragmentation rule. This will be the case whether the person in turn holds a direct interest in the company with the direct interest in the potential QAHC, or an indirect interest. In either case, the person will hold an interest in the potential QAHC through a company connected with them which holds a direct interest in the potential QAHC. The rule, therefore, still applies if a person sets up a stack of two or more companies to hold their direct stake in the potential QAHC.

The rule is extended by PARA 4(2A) to treat beneficial entitlements held solely through one or more QAHCs as held by a person directly.

PARA 4(3) further augments the rule so that a person’s relevant interest will also include indirect interests of their connected persons. (Note that fellow partners are not treated as connected ‘by virtue only of being partners in the qualifying fund’. However, if they are otherwise connected, they will be treated as connected in the usual way.) This ensures interests are aggregated if, in the example above, the person is an individual whose spouse owns an interest in the qualifying fund.

The rule contains no double counting provisions so that the same interest of a non-category A investor is not counted twice.