Income Tax Act 2007 (c. 3)

Part 13 U.K. Tax avoidance

Chapter 1 U.K. Transactions in securities

[F1 Person liable to counteraction of income tax advantages U.K.

Textual Amendments

F1 Ss. 682-687 and cross-headings substituted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) for s. 682-694 and cross-headings by Finance Act 2010 (c. 13), Sch. 12 para. 2

684 Person liable to counteraction of income tax advantage U.K.

(1) This section applies to a person [F2 (“the party”)] where—

(a) the person is a party to a transaction in securities or two or more transactions in securities (see subsection (2)),

(b) the circumstances are covered by section 685 and not excluded by section 686,

(c) the main purpose, or one of the main purposes, of F3 ... the transaction in securities, or any of the transactions in securities, is to obtain an income tax advantage, and

(d) [F4 the party or any other person] obtains an income tax advantage in consequence of the transaction or the combined effect of the transactions.

(2) In this Chapter “transaction in securities” means a transaction, of whatever description, relating to securities, and includes in particular—

(a) the purchase, sale or exchange of securities,

(b) issuing or securing the issue of new securities,

(c) applying or subscribing for new securities, F5 ...

(d) altering or securing the alteration of the rights attached to securities.

[F6 (e) a repayment of share capital or share premium, and

(f) a distribution in respect of securities in a winding up.]

(3) Section 687 defines “income tax advantage”.

[F7 (4) This section is subject to no-counteraction notices issued under section 698A.]

Textual Amendments

F2 Words in s. 684(1) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(2)(a) (with s. 33(9)(10))

F3 Words in s. 684(1)(c) omitted (with effect in accordance with s. 33(8) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 33(2)(b) (with s. 33(9)(10))

F4 Words in s. 684(1)(d) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(2)(c) (with s. 33(9)(10))

F5 Word in s. 684(2)(c) omitted (with effect in accordance with s. 33(8) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 33(3)(a) (with s. 33(9)(10))

F6 S. 684(2)(e)(f) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(3)(b) (with s. 33(9)(10))

F7 S. 684(4) substituted (with effect in accordance with s. 34(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 34(7)

Modifications etc. (not altering text)

C1 S. 684 disapplied (24.2.2022) by Finance Act 2022 (c. 3), Sch. 2 para. 49

685 Receipt of consideration in connection with distribution by or assets of close company U.K.

(1) The circumstances covered by this section are circumstances where condition A or condition B is met.

(2) Condition A is that, as a result of the transaction in securities or any one or more of the transactions in securities, [F8 a relevant person] receives relevant consideration in connection with—

(a) the distribution, transfer or realisation of assets of a close company,

(b) the application of assets of a close company in discharge of liabilities, or

(c) the direct or indirect transfer of assets of one close company to another close company,

and [F9 the relevant person] does not pay or bear income tax on the consideration (apart from this Chapter).

(3) Condition B is that—

(a) [F10 a relevant person] receives relevant consideration in connection with the transaction in securities or any one or more of the transactions in securities,

(b) two or more close companies are concerned in the transaction or transactions in securities concerned, and

(c) [F11 the relevant person] does not pay or bear income tax on the consideration (apart from this Chapter).

[F12 (3A) In subsections (2) and (3) “relevant person” means—

(a) the party, or

(b) any person other than the party in relation to whom the condition in section 684(1)(d) is met.]

(4) In a case within subsection (2)(a) or (b) “relevant consideration” means consideration which—

(a) is or represents the value of—

(i) assets which are available for distribution by way of dividend by the company, or

(ii) assets which would have been so available apart from anything done by the company,

(b) is received in respect of future receipts of the company, or

(c) is or represents the value of trading stock of the company.

(5) In a case within subsection (2)(c) or (3) “relevant consideration” means consideration which consists of any share capital or any security issued by a close company and which is or represents the value of assets which—

(a) are available for distribution by way of dividend by the company,

(b) would have been so available apart from anything done by the company, or

(c) are trading stock of the company.

F13 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) So far as subsection (2)(c) or (3) relates to share capital other than redeemable share capital, it applies only so far as the share capital is repaid (on a winding up or otherwise); and for this purpose any distribution made in respect of any shares on a winding up or dissolution of the company is to be treated as a repayment of share capital.

[F14 (7A) The references in subsection (4)(a)(i) and (ii) to assets do not include assets shown to represent return of sums paid by subscribers on the issue of securities merely because the law of the country in which the company is incorporated allows assets of that description to be available for distribution by way of dividend.

(7B) The references in subsections (4)(a)(i) and (5)(a) to assets which are available for distribution by way of dividend by the company include assets which are available for distribution to the company by way of dividend by any other company it controls.]

(8) References in this section to the receipt of consideration include references to the receipt of any money or money's worth.

(9) In this section—

• “security” includes securities not creating or evidencing a charge on assets;

• “share” includes stock and any other interest of a member in a company.

Textual Amendments

F8 Words in s. 685(2) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(a)(i) (with s. 33(9)(10))

F9 Words in s. 685(2) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(a)(ii) (with s. 33(9)(10))

F10 Words in s. 685(3)(a) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(b)(i) (with s. 33(9)(10))

F11 Words in s. 685(3)(c) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(b)(ii) (with s. 33(9)(10))

F12 S. 685(3A) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(c) (with s. 33(9)(10))

F13 S. 685(6) omitted (with effect in accordance with s. 33(8) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 33(4)(d) (with s. 33(9)(10))

F14 S. 685(7A)(7B) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(4)(e) (with s. 33(9)(10))

686 Excluded circumstances: fundamental change of ownership U.K.

(1) Circumstances are excluded by this section if—

(a) immediately before the transaction in securities (or the first of the transactions in securities) [F15 the party] holds shares or an interest in shares in the close company, and

(b) there is a fundamental change of ownership of the close company.

[F16 (2) There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met.

(3) The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates—

(a) do not directly or indirectly hold more than 25% of the ordinary share capital of the close company,

(b) do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and

(c) do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company.

(4) In this section “original shareholder” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company.

(5) For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.]

Textual Amendments

F15 Words in s. 686(1)(a) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(5)(a) (with s. 33(9)(10))

F16 S. 686(2)-(5) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(5)(b) (with s. 33(9)(10))

687 Income tax advantage U.K.

(1) For the purposes of this Chapter [F17 a person] obtains an income tax advantage if—

(a) the amount of any income tax which would be payable by the person in respect of the relevant consideration if it constituted a F18 ... distribution exceeds the amount of any capital gains tax payable in respect of it, or

(b) income tax would be payable by the person in respect of the relevant consideration if it constituted a F18 ... distribution and no capital gains tax is payable in respect of it.

(2) So much of the relevant consideration as exceeds the maximum amount that could in any circumstances have been paid to the person [F19 or an associate of the person] by way of a F18 ... distribution at the time when [F20 Condition A or B in section 685 is met] is to be left out of account for the purposes of subsection (1).

(3) The amount of the income tax advantage is the amount of the excess or (if no capital gains tax is payable) the amount of the income tax which would be payable.

(4) In this section[F21 —

(a) distribution” does not include a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) of CTA 2010 (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company), and

(b)] “relevant consideration” has the same meaning as in section 685.]

Textual Amendments

F17 Words in s. 687(1) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(6)(a) (with s. 33(9)(10))

F18 Word in s. 687 omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 63(10)(a)

F19 Words in s. 687(2) inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(6)(b)(i) (with s. 33(9)(10))

F20 Words in s. 687(2) substituted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(6)(b)(ii) (with s. 33(9)(10))

F21 Words in s. 687(4) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 63(10)(b)

F1 688 Receipt of consideration representing company's assets, future receipts or trading stock (circumstance C) U.K.

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F1 689 Receipt of consideration in connection with relevant company distribution (circumstance D) U.K.

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F1 690 Receipt of assets of relevant company (circumstance E) U.K.

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F1 691 Meaning of “relevant company” in sections 689 and 690 U.K.

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F1 692 Abnormal dividends: general U.K.

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F1 693 Abnormal dividends: the excessive return condition U.K.

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F1 694 Abnormal dividends: the excessive accrual condition U.K.

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