(1)Subject to the following provisions of this section, where a close company makes a transfer of value, tax shall be charged as if each individual to whom an amount is apportioned under this section had made a transfer of value of such amount as after deduction of tax (if any) would be equal to the amount so apportioned, less the amount (if any) by which the value of his estate is more than it would be but for the company's transfer; but for this purpose his estate shall be treated as not including any rights or interests in the company.
(2)For the purposes of subsection (1) above the value transferred by the company's transfer of value shall be apportioned among the participators according to their respective rights and interests in the company immediately before the transfer, and any amount so apportioned to a close company shall be further apportioned among its participators, and so on; but—
(a)so much of that value as is attributable to any payment or transfer of assets to any person which falls to be taken into account in computing that person's profits or gains or losses for the purposes of income tax or corporation tax shall not be apportioned; and
(b)if any amount which would otherwise be apportioned to an individual who is domiciled outside the United Kingdom is attributable to the value of any property outside the United Kingdom, that amount shall not be apportioned.
(3)The persons liable for the tax chargeable under subsection (1) above shall be the company and, so far as it remains unpaid after it ought to have been paid, the persons to whom any amounts have been apportioned under this section and any individual (whether such a person or not) the value of whose estate is increased by the company's transfer ; but—
(a)a person to whom not more than 5 per cent, of the value transferred is apportioned shall not as such be liable for any of the tax ; and
(b)each of the other persons to whom any part of that value has been apportioned shall be so liable only for such part of the tax as corresponds to that part of that value; and
(c)a person shall not as a person the value of whose estate is increased be liable for a greater amount than the amount of the increase.
(4)Notwithstanding section 51(2) of this Act, tax chargeable under subsection (1) above shall be left out of account in determining with respect to any time after the company's transfer what previous transfers of value have been made by a person falling within subsection (3)(a) above.
(5)Where there is at any time an alteration in so much of a close company's share or loan capital as does not consist of shares or securities quoted on a recognised stock exchange or an alteration in any rights attaching to shares in or debentures of a close company which are not so quoted, the alteration shall be treated as having been made by a disposition made at that time by the participators, whether or not it would fall to be so treated apart from this subsection.
(6)In this section—
" alteration " includes extinguishment;
" close company " means a company within the meaning of the Corporation Tax Acts which is, or would, if resident in the United Kingdom, be a close company for the purposes of those Acts;
" participator ", in relation to any company, means any person who is (or would be if the company were resident in the United Kingdom) a participator in relation to that company for the purposes of Chapter III of Part XI of the Taxes Act, other than a person who would be such a participator by reason only of being a loan creditor.
(7)In determining for the purposes of this section whether a disposition made by a close company is a transfer of value or what value is transferred by such a transfer section 41 of this Act shall be disregarded.
(8)References in this section to a person's rights and interests in a company include rights and interests in the assets of the company available for distribution among the participators in the event of a winding up or in any other circumstances.
(9)This section has effect subject to paragraph 24 of Schedule 5 to this Act.