44 Arrangements reducing value of company shares

Summary

This section counteracts the avoidance of capital acquisitions tax by transferring the rights attaching to particular shares. The value of the rights transferred is deemed to be a gift or inheritance, as the case may be.

Details

(1) “arrangement” means an arrangement which is made on or after 25 January 1989, and includes—

• any act or omission by a person or by the trustees of a disposition;
• any act or omission by any person having an interest in shares in the company;
• the passing by any company of a resolution; or
• any combination of acts, omissions or resolutions referred to above;

“company” means a private company within the meaning assigned by section 27;

“event” includes—

• a death, and
• the expiration of a specified period;

“related shares” means the shares in a company, the market value of which shares is increased by any arrangement;

“related trust” has the meaning assigned to it by subsections (3) and (5);

“specified amount” means an amount equal to the difference between—

• the market value of shares in a company immediately before an arrangement is made and ascertained under the provisions of section 27 as if each share were a share in a company controlled by the disponer concerned, and
• the market value of those shares, or of property representing those shares, immediately after the arrangement is made and ascertained under the provisions of section 26.

Any such specified amount is deemed to be situated where the private company is incorporated.

(2) A reference to a company controlled by the disponer concerned is a reference to a company that is under the control of one or more of the following:

• that disponer;
• the relatives of that disponer;
• nominees of relatives of that disponer; and
• the trustees of a settlement whose objects include that disponer or relatives of that disponer.

A company which is so controlled by that disponer is regarded as being itself a relative of that disponer.

(3) Where the absolute owner of shares in a company enters into an arrangement after which the shares are reduced in value, any corresponding increase in value in related shares (as defined) will be deemed to be a gift or inheritance given by him/her to the owners of those related shares. The amount of the increase is called the “specified amount”.

(4) If the property in a trust in which a person has a limited interest includes shares in a company, the trust is deemed to have held 2 types of property in relation to those shares, namely—

• the specified amount, and
• the shares as reduced.

Tax will be payable in respect of the specified amount as if the limited interest had ceased and the owners of the related shares had taken a gift or inheritance of the specified amount from the disponer in relation to the trust.

(5) Where value is shifted out of shares comprised in a discretionary trust, the following provisions apply:

• if the shares the value of which is increased (the “related shares”) are owned beneficially, the beneficial owners of the related shares are deemed to have taken a benefit;
• if the related shares are held by a discretionary trust (the “related trust”), the disponer in relation to the related trust is deemed to have taken a benefit.

(6) The provisions of subsections (3), (4) and (5) will not prejudice any charge for tax under any disposition on or after the making of an arrangement referred to in those subsections.

(7) Where the shares in a company, which are held in trust under a disposition made by any disponer, are related shares by reason of any arrangement referred to in the section, any gift or inheritance taken under the disposition on or after the arrangement is made and comprising those related shares, or property representing those related shares, will be deemed to be taken from that disponer.

(8) As regards the tax due and payable in respect of a gift or inheritance taken by virtue of this subsection under a discretionary trust—

• the disponer in relation to the related trust will not be a person primarily accountable for the payment of such tax, and
• a person who is a trustee of the related trust for the time being at the date of the gift or at the date of the inheritance, or at any date subsequent to that date, will be the person primarily accountable.

(9) A person who is accountable for the payment of tax in respect of any specified amount, or part of a specified amount, taken as a gift or an inheritance under the section has power to raise the amount of tax or interest and any expenses properly paid or incurred by him/her in respect of such tax or interest, by the sale or mortgage of, or a terminable charge on, the related shares for the purpose of payment of the tax or raising the amount of tax when it has already been paid.

(10) Tax due and payable in respect of a taxable gift or inheritance taken under the section remains a charge on the related shares in the relevant company.

(11) Where related shares are subject to a discretionary trust immediately after an arrangement is made in accordance with the provisions of the section, the amount by which the market value of such shares is increased by such arrangement will be property for the purposes of a charge for tax arising by reason of the provisions of section 15.

(12) If shares are redeemed under an arrangement made on or after 5 May 1993 to reduce the value of shares, any property representing shares is deemed, immediately after the arrangement, to have a market value of nil. This provision does not apply, however, where the redeemed shares are actually represented by property (e.g. the proceeds from the sale of the shares).

Relevant Date: Finance Act 2015