Corporation Tax Act 2010

Transfers to which Chapter applies

940 Transfers to which Chapter applies

This Chapter applies to a transfer of a trade if—

(a) the ownership condition is met (see sections 941 and 942), and

(b) the tax condition is met (see section 943).

941 The ownership condition

(1) The ownership condition is that—

(a) on the transfer of the transferred trade or at some time during the period of two years beginning immediately after the transfer, a 75% interest in the transferred trade belongs to certain persons, and

(b) at some time during the period of one year ending immediately before the transfer, a 75% interest in the transferred trade belonged to the same persons.

(2) In subsection (1) references to a 75% interest are to an interest amounting to a share of at least 75%.

(3) If at any time the activities of the transferred trade are actually included in the activities of another trade, for the purposes of subsection (1) interests in the transferred trade at that time are determined by reference to interests in the other trade.

(4) Accordingly, a person who has an interest in the other trade at that time is taken to have a corresponding interest in the transferred trade.

(5) For the purposes of this section—

(a) if two or more companies carry on a trade, the interests in the trade belonging to them are taken to correspond to the shares of the trade’s profits to which they are entitled, and

(b) an interest in a trade belonging to trustees (otherwise than for charitable or public purposes) is treated as belonging to the persons for the time being entitled to the income under the trust.

(6) If a company is carrying on a trade, the interest in the trade belonging to the company may be treated in accordance with any of the options set out in section 942(1) if that results in the ownership condition being met.

(7) In determining for the purposes of this section the extent to which an interest in a trade belongs at different times to the same persons—

(a) the persons from time to time entitled to the income under a trust are treated as a single person, and

(b) persons who are relatives of one another are treated as a single person.

(8) In subsection (7) “relative” means spouse, civil partner, ancestor, lineal descendant, brother or sister.

942 Options that may be applied for the purposes of the ownership condition

(1) The options referred to in section 941(6) are as follows (with references in the options to “the trading company” being to the company to which the interest in the trade belongs as mentioned in that subsection).

• Option 1

  The interest in the trade is taken to belong to the persons owning the ordinary share capital of the trading company in proportion to the amount of their holdings of that capital.

• Option 2

  This option can be applied if the trading company is the subsidiary of another company (see subsection (2)).

  The interest in the trade is taken to belong to—

  (a)

  a company that is a parent company of the trading company (see subsection (3)), or

  (b)

  the persons owning the ordinary share capital of such a parent company in proportion to the amount of their holdings of that capital.

• Option 3

  This option can be applied if—

  (a)

  a person (“P”) has management control over a company (see subsections (4) and (5)), and

  (b)

  by applying Option 1 or 2 an interest in the trade can be taken to belong to that company.

  That interest in the trade is instead taken to belong to P.

(2) For the purposes of this section a company (“company A”) is a subsidiary of another company (“company B”) if at least 75% of company A’s ordinary share capital is owned by company B.

(3) If company A is a subsidiary of company B, company B is a parent company of company A unless both are subsidiaries of a third company.

(4) For the purposes of subsection (1) a person has management control over a company if the person has the power to secure that the affairs of the company are conducted in accordance with the wishes of the person.

(5) “Power” in subsection (4) means power resulting from—

(a) the holding of shares or the possession of voting rights in or in relation to any company, or

(b) a document regulating any company.

(6) In this section references to a person owning ordinary share capital are to be read, if the person is a company, as references to the company owning the capital—

(a) directly,

(b) through another company or companies, or

(c) partly directly and partly through another company or companies.

(7) If a company owns ordinary share capital as mentioned in subsection (6)(b) or (c), the amount of the capital owned by the company is determined in accordance with sections 1155 to 1157.

(8) In this section references to ownership are references to beneficial ownership.

943 The tax condition

(1) The tax condition is that, in the period mentioned in subsection (2), the transferred trade is carried on only by companies within the charge to corporation tax or income tax in respect of the trade.

(2) That period is the period—

(a) beginning with the latest time at which the requirement of section 941(1)(b) is met for the purposes of the ownership condition, and

(b) ending with the earliest time at which the requirement of section 941(1)(a) is met for the purposes of that condition.

(3) If at any time the activities of the transferred trade are actually included in the activities of another trade, subsection (1) applies in relation to that time as if references to the transferred trade were references to the other trade.