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HMRC internal manual

VAT Groups

Eligibility for VAT group treatment: control conditions: shares held by nominees and trustees

Shares held by a person as a nominee are treated as being held by the nominator, and may not be used by the nominee to prove control of a company.

A bare trust or nominee works as follows: The bare trust or nominee holds the shares on behalf of the beneficiary and must act in accordance with the instructions of the beneficiary. The bare trustee or nominee is the legal owner and the nominator is the beneficial owner.

For example:

A holds 100 shares in B on a bare trust (or as nominee) for C. Whilst A holds title to the shares, C is entitled to the shares and any benefit arising from them. There would normally be a short trust declaration, but the principal legal point is that A holds the shares on trust for C and C is entitled to the shares rather than A.

In practice A is C’s nominee and is a bare trustee. C is entitled to the dividends, although the company pays them to A, who is on the register of shareholders as the holder of the shares. In view of the fact that A is registered as the holder of the shares, A is the only one allowed to vote at shareholders meetings. However, A must vote in accordance with C’s wishes. Under these circumstances, it would not be the trustee (nominee) A who HMRC would see as the controlling body, but the beneficiary (nominator) C.

In trusts other than bare trusts, trustees may exercise control of a company using the shares that they hold as trustees of that trust. However, they may not add those shares to any that they may hold in a personal capacity or as trustees of another trust to prove control.

For example:

If A and B are trustees of a trust which has, amongst its assets, 52% of the shares in C (thereby holding 52% of the voting rights in the company), A and B can exercise those voting rights in their capacity as trustees of the trust and can be said to control the company.

If on the other hand, A and B, as trustees of trust 1, hold 26% of the voting rights in C and, as trustees of trust 2, they hold a further 26% and they jointly own a further 26% of the voting rights themselves, they cannot combine the shares which they hold in a fiduciary capacity for trust 1 with those held for trust 2 with those they hold themselves in a beneficial capacity (those held in their own joint names) to control the company.

This is largely because, when exercising the voting rights that they hold in a fiduciary capacity, they are bound to act in the best interests of the beneficiaries of the separate trusts. When exercising the voting rights that they hold in their own names they can act in their own best interests. This may lead to a situation where the interests clash.