SDLTM24780 - Genuine Diversity of Ownership Ceases – CoACS
Relief may be withdrawn in respect of a ‘relevant transaction’ if a CoACS ceases to meet the ‘genuine diversity of ownership’ (GDO) condition.
The Genuine Diversity of Ownership condition (GDO)
A scheme meets the GDO condition when the conditions below are met:
Condition A - that the scheme documents are available to investors and to HMRC for inspection, and contain:
a statement specifying the intended categories of investor,
an undertaking that units in the scheme will be widely available, and
an undertaking that units in the scheme will be marketed and made available in accordance with Condition C.
Condition B – that:
the specification of intended the investors does not have a limiting or deterrent effect, and
any other terms or conditions governing participation in the scheme by investors do not have a ‘limiting or deterrent effect’.
Condition C - that units in the scheme are marketed and made available:
sufficiently widely to reach the intended categories of investors, and
in a manner appropriate to attract such investors; and
a person who falls within one of the intended investor categories can, upon request to the operator of the scheme, obtain information about the scheme and acquire units in it.
A scheme is not regarded as failing to meet condition C at any time by reason of the scheme's having, at that time, no capacity to receive additional investments, unless:
the capacity of the scheme to receive investments in it is fixed by the scheme documents (or otherwise), and
a pre-determined number of specific persons or specific groups of ’connected persons’ make investments in the scheme which collectively exhaust all, or substantially all, of that capacity.
A scheme also meets the GDO condition at any time when there is a feeder fund in relation to the scheme, and Conditions A to C are met in relation to the scheme after taking into account:
the scheme documents relating to the feeder fund, and
the intended investors in the feeder fund.
GDO Condition - Conversions from a RIF to a CoACS
Where the scheme was a RIF at the time of the relevant transaction, and has later converted to a CoACS, the scheme will continue to meet the GDO condition at any time the scheme;
meets the GDO condition that applies for RIFs – See IFM9225 , or
meets the non-close condition for RIFs – See IFM9230
This does not apply where the scheme meets that condition solely by replying on a grace period.
Where the RIF did not meet the GDO condition or non-close condition, other than by virtue of a grace period, relief will be withdrawn. This is because the grace period would cease to have effect upon conversion of the RIF to a CoACS.
Withdrawal
Relief may be withdrawn in respect of a ‘relevant transaction’ if a CoACS ceases to meet the GDO condition;
at any time between the effective date of such a transaction and the end of the seeding period, or,
at any time in the control period, or,
in connection with arrangement made before the end of the control period,
and the chargeable interest (or one derived from it) is still held by the scheme at the point of withdrawal.
Where relief is withdrawn because of failing to meet the GDO condition, the amount of SDLT payable is that amount that would have been paid but for the relief, or an ‘appropriate proportion’ of the relief.
Full withdrawal
Where relief is withdrawn in full, the amount of tax chargeable is the amount that would have been chargeable in respect of the transaction if seeding relief had not been available.
Partial withdrawal
The value of the ‘appropriate proportion’ is determined by comparing of the subject matter of the ‘relevant transaction’ and the property owned by the scheme at the time it ceases to be a CoACS. This provision exists to facilitate calculation of the SDLT due in cases where it is difficult to establish a value for a `relevant transaction’ at the time the scheme ceases to be a CoACS.
Clearance
The operator of a CoACS may apply to HMRC in writing for clearance that the scheme meets the GDO condition. See SDLTM09080.
HMRC will notify the scheme of its decision on such a clearance application within 28 days of the receipt of all the information that is needed to make the decision. A clearance has effect only for so long as the information on which HMRC relies in granting it is materially unchanged and the scheme is operated in accordance with such information (including, in particular, continuing to operate in accordance with Condition C of the GDO condition).