Finance Act 1982

Section 53.

SCHEDULE 9 Purchase of Own Shares by Unquoted Trading Company

Conditions for application of section 53(1)

1 (1) The vendor must be resident and ordinarily resident in the United Kingdom in the year of assessment in which the purchase is made and if the shares are held through a nominee the nominee must also be so resident and ordinarily resident.

(2) The residence and ordinary residence of trustees shall be determined for the purposes of this paragraph as they are determined under section 52 of the [1979 c. 14.] Capital Gains Tax Act 1979 for the purposes of that Act.

(3) The residence and ordinary residence of personal representatives shall be taken for the purposes of this paragraph to be the same as the residence and ordinary residence of the deceased immediately before his death.

(4) The references in this paragraph to a person's ordinary residence shall be disregarded in the case of a company.

2 (1) The shares must have been owned by the vendor throughout the period of five years ending with the date of the purchase.

(2) If at any time during that period the shares were transferred to the vendor by a person who was then his spouse living with him then, unless that person is alive at the date of the purchase but is no longer the vendor's spouse living with him, any period during which the shares were owned by that person shall be treated for the purposes of sub-paragraph (1) above as a period of ownership by the vendor.

(3) Where the vendor became entitled to the shares under the will or on the intestacy of a previous owner—

(a) any period during which the shares were owned by the previous owner or his personal representatives shall be treated for the purposes of sub-paragraph (1) above as a period of ownership by the vendor, and

(b) that sub-paragraph shall have effect as if it referred to three years instead of five.

(4) Where the vendor is a personal representative of a deceased owner—

(a) any period during which the shares were owned by the deceased shall be treated for the purposes of sub-paragraph (1) above as a period of ownership by the vendor, and

(b) that sub-paragraph shall have effect as if it referred to three years instead of five.

(5) In determining whether the condition in this paragraph is satisfied in a case where the vendor acquired shares of the same class at different times—

(a) shares acquired earlier shall be taken into account before shares acquired later, and

(b) any previous disposal by him of shares of that class shall be assumed to be a disposal of shares acquired later rather than of shares acquired earlier.

(6) If for the purposes of capital gains tax the time when shares were acquired would be determined under any provision of Chapter II of Part IV of the [1979 c. 14.] Capital Gains Tax Act 1979 (reorganisation of share capital, conversion of securities, etc.) then, subject to sub-paragraph (7) below, it shall be determined in the same way for the purposes of this paragraph.

(7) Sub-paragraph (6) above shall not apply to shares allotted for payment or comprised in share capital to which section 34 of the [1975 c. 45.] Finance (No. 2) Act 1975 (stock dividends) applies.

3 (1) If immediately after the purchase the vendor owns shares of the company, then, subject to paragraph 9 below, his interest as a shareholder must be substantially reduced.

(2) Subject to sub-paragraph (3) below the vendor's interest as a shareholder shall be taken to be substantially reduced if and only if the total nominal value of the shares owned by him immediately after the purchase, expressed as a fraction of the issued share capital of the company at that time, does not exceed 75 per cent, of the corresponding fraction immediately before the purchase.

(3) The vendor's interest as a shareholder shall not be taken to be substantially reduced where—

(a) he would, if the company distributed all its profits available for distribution immediately after the purchase, be entitled to a share of those profits, and

(b) that share, expressed as a fraction of the total of those profits, exceeds 75 per cent, of the corresponding fraction immediately before the purchase.

(4) In determining for the purposes of sub-paragraph (3) above the division of profits among the persons entitled to them, a person entitled to periodic distributions calculated by reference to fixed rates or amounts shall be regarded as entitled to a distribution of the amount or maximum amount to which he would be entitled for a year.

(5) In sub-paragraph (3) above " profits available for distribution " has the same meaning as it has for the purposes of Part III of the [1980 c. 22.] Companies Act 1980, but subject to sub-paragraph (6) below.

(6) For the purposes of sub-paragraph (3) above the amount of the profits available for distribution (whether immediately before or immediately after the purchase) shall be treated as increased—

(a) in the case of every company, by £100, and

(b) in the case of a company from which any person is entitled to periodic distributions of the kind mentioned in sub-paragraph (4) above, by a further amount equal to that required to make the distribution to which he is entitled in accordance with that sub-paragraph :

and where the aggregate of the sums payable by the company on the purchase and on any contemporaneous redemption, repayment or purchase of other shares of the company exceeds the amount of the profits available for distribution immediately before the purchase, that amount shall be treated as further increased by an amount equal to the excess.

(7) References in this paragraph to entitlement are, except in the case of trustees and personal representatives, references to beneficial entitlement.

4 (1) If immediately after the purchase any associate of the vendor owns shares of the company then, subject to paragraph 9 below, the combined interests as shareholders of the vendor and his associates must be substantially reduced.

(2) The question whether the combined interests as shareholders of the vendor and his associates are substantially reduced shall be determined in the same way as is (under paragraph 3 above) the question whether a vendor's interest as a shareholder is substantially reduced, except that the vendor shall be assumed to have the interests of his associates as well as his own.

5 (1) This paragraph applies where the company making the purchase is immediately before the purchase a member of a group and either—

(a) immediately after the purchase the vendor owns shares of one or more other members of the group (whether or not he then owns shares of the company making the purchase), or

(b) immediately after the purchase the vendor owns shares of the company making the purchase and immediately before the purchase he owned shares of one or more other members of the group;

and in the following provisions of this paragraph "relevant company" means the company making the purchase and any other member of the group in which the vendor owns shares immediately before or immediately after the purchase.

(2) Where this paragraph applies then, subject to paragraph 9 below, the vendor's interest as a shareholder in the group must be substantially reduced.

(3) The vendor's interest as a shareholder in the group shall be ascertained by-

(a) expressing the total nominal value of the shares owned by him in each relevant company as a fraction of the issued share capital of the company,

(b) adding together the fractions so obtained, and

(c) dividing the result by the number of relevant companies (including any in which he owns no shares).

(4) Subject to sub-paragraph (5) below, the vendor's interest as a shareholder in the group shall be taken to be substantially reduced if and only if it does not exceed 75 per cent, of the corresponding interest immediately before the purchase.

(5) The vendor's interest as a shareholder in the group shall not be taken to be substantially reduced if—

(a) he would, if every member of the group distributed all its profits available for distribution immediately after the purchase (including any profits received by it on a distribution by another member), be entitled to a share of the profits of one or more of them, and

(b) that share, or the aggregate of those shares, expressed as a fraction of the aggregate of the profits available for distribution of every member of the group which is—

(i) a relevant company, or

(ii) a 51 per cent, subsidiary of a relevant company,

exceeds 75 per cent, of the corresponding fraction immediately before the purchase.

(6) Sub-paragraphs (4) to (6) of paragraph 3 above shall apply for the purposes of sub-paragraph (5) above as they apply for the purposes of paragraph 3(3).

(7) Subject to the following sub-paragraphs, in this paragraph " group " means a company which has one or more 51 per cent, subsidiaries, but is not itself a 51 per cent, subsidiary of any other company, together with those subsidiaries.

(8) Where the whole or a significant part of the business carried on by an unquoted company (" the successor company ") was previously carried on by—

(a) the company making the purchase, or

(b) a company which is (apart from this sub-paragraph) a member of a group to which the company making the purchase belongs,

the successor company and any company of which it is a 51 per cent, subsidiary shall be treated as being a member of the same group as the company making the purchase (whether or not, apart from this sub-paragraph, the company making the purchase is a member of a group).

(9) Sub-paragraph (8) above shall not apply if the successor company first carried on the business there referred to more than three years before the time of the purchase.

(10) For the purposes of this paragraph a company which has ceased to be a 51 per cent, subsidiary of another company before the time of the purchase shall be treated as continuing to be such a subsidiary if at that time there exist arrangements under which it could again become such a subsidiary.

6 (1) This paragraph applies where the company making the purchase is immediately before the purchase a member of a group and at that time an associate of the vendor owns shares of any member of the group.

(2) Where this paragraph applies then, subject to paragraph 9 below, the combined interests as shareholders in the group of the vendor and his associates must be substantially reduced.

(3) The question whether the combined interests as shareholders in the group of the vendor and his associates are substantially reduced shall be determined in the same way as is (under paragraph 5 above) the question whether a vendor's interest as a shareholder in a group is substantially reduced, except that the vendor shall be assumed to have the interests of his associates as well as his own (and references in paragraph 5(3) to (5) to a relevant company shall be construed accordingly).

(4) For the purposes of this paragraph "group" has the same meaning as it has for the purposes of paragraph 5 above.

7 (1) The vendor must not immediately after the purchase be connected with the company making the purchase or with any company which is a member of the same group as that company.

(2) For the purposes of this paragraph "group" has the same meaning as it has for the purposes of paragraph 5 above.

(3) This paragraph has effect subject to paragraph 9 below.

8 (1) The purchase must not be part of a scheme or arrangement which is designed or likely to result in the vendor or any associate of his having interests in any company such that, if he had those interests immediately after the purchase, any of the conditions in paragraphs 3 to 7 above could not be satisfied.

(2) A transaction occurring within one year after the purchase shall be deemed for the purposes of sub-paragraph (1) above to be part of a scheme or arrangement of which the purchase is also part.

(3) This paragraph has effect subject to paragraph 9 below.

9 (1) Where—

(a) any of the conditions in paragraphs 3 to 8 above which are applicable are not satisfied in relation to the vendor, but

(b) he proposed or agreed to the purchase in order that the condition in paragraph 4(1) or 6(2) could be satisfied in respect of the redemption, repayment or purchase of shares owned by a person of whom he is an associate,

this paragraph applies to the purchase to the extent that that result is produced by virtue of the purchase.

(2) Where this paragraph applies, section 53(1) of this Act shall have effect as if the conditions in paragraphs 3 to 8 above were satisfied in relation to the vendor.

Administration

10 (1) A payment made by a company on the redemption, repayment or purchase of its own shares shall be deemed to be one to which section 53 of this Act applies if, before it is made, the Board have on the application of the company notified the company that they are satisfied that the section will apply.

(2) A payment made by a company on the redemption, repayment or purchase of its own shares shall be deemed to be one to which section 53 of this Act does not apply if, before it is made, the Board have on the application of the company notified the company that they are satisfied that the section will not apply.

(3) An application under this paragraph shall be in writing and shall contain particulars of the relevant transactions ; and the Board may, within thirty days of the receipt of the application or of any further particulars previously required under this sub-paragraph, by notice require the applicant to furnish further particulars for the purpose of enabling the Board to make their decision.

(4) If a notice under sub-paragraph (3) above is not complied with within thirty days or such longer period as the Board may allow, the Board need not proceed further on the application.

(5) The Board shall notify their decision to the applicant within thirty days of receiving the application or, if they give a notice under sub-paragraph (3) above, within thirty days of the notice being complied with.

(6) If particulars furnished under this paragraph do not fully and accurately disclose all facts and circumstances material for the decision of the Board, any resulting notification by the Board shall be void.

11 (1) A company which treats a payment made by it as one to which section 53 of this Act applies shall within sixty days after making the payment make a return to the inspector giving particulars of the payment and of the circumstances by reason of which section 53 is regarded as applying to it.

(2) Where a company treats a payment made by it as one to which section 53(1) of this Act applies, any person connected with the company who knows of any such scheme or arrangement affecting the payment as is mentioned in paragraph 8 above shall, within sixty days after he first knows of both the payment and the scheme or arrangement, give a notice in writing to the inspector containing particulars of the scheme or arrangement.

12 (1) Where the inspector has reason to believe that a payment treated by the company making it as one to which section 53(1) of this Act applies may form part of a scheme or arrangement of the kind referred to in subsection (1)(b) of that section or in paragraph 8 above, he may by notice in writing require the company or any person who is connected with the company to furnish him within such time, not being less than sixty days, as may be specified in the notice with—

(a) a declaration in writing stating whether or not, according to information which the company or that person has or can reasonably obtain, any such scheme or arrangement exists or has existed, and

(b) such other information as the inspector may reasonably require for the purposes of the provision in question and the company or that person has or can reasonably obtain.

(2) The recipient of a payment treated by the company making it as one to which section 53 of this Act applies, and any person on whose behalf such a payment is received, shall if so required by the inspector state whether the payment received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person.

13 (1) The Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 shall be amended as follows.

(2) At the end of the first column there shall be added—

“Paragraph 12 of Schedule 9 to the Finance Act 1982.”

(3) At the end of the second column there shall be added—

“Paragraph 11 of Schedule 9 to the Finance Act 1982.”

Interpretation

14 (1) Any question whether a person is an associate of another in relation to a company shall be determined for the purposes of this Schedule in accordance with the following provisions of this paragraph.

(2) A husband and wife living together are associates of one another.

(3) A person under the age of eighteen is an associate of his parents, and his parents are his associates.

(4) A person connected with a company is an associate of the company and of any company controlled by it, and the company and any company controlled by it are his associates.

(5) Where a person connected with one company has control of another company, the second company is an associate of the first.

(6) Where shares of a company are held by trustees (other than bare trustees) then in relation to that company, but subject to sub-paragraph (9) below, the trustees are associates of—

(a) any person who directly or indirectly provided property to the trustees or has made a reciprocal arrangement for another to do so, and

(b) any person who is, by virtue of sub-paragraph (2) or (3) above, an associate of a person within paragraph (a) above, and

(c) any person who is or may become beneficially entitled to a significant interest in the shares ;

and any such person is an associate of the trustees.

(7) Where shares of a company are comprised in the estate of a deceased person, then in relation to that company the deceased's personal representatives are associates of any person who is or may become beneficially entitled to a significant interest in the shares, and any such person is an associate of the personal representatives.

(8) Where one person is accustomed to act on the directions of another in relation to the affairs of a company, then in relation to that company the two persons are associates of one another.

(9) Sub-paragraph (6) above shall not apply to shares held on trusts which—

(a) relate exclusively to an exempt approved scheme as defined in Chapter II of Part II of the [1970 c. 24.] Finance Act 1970, or

(b) are exclusively for the benefit of the employees, or the employees and directors, of the company referred to in that sub-paragraph or of companies in a group to which that company belongs, or their dependants (and are not wholly or mainly for the benefit of directors or their relatives);

and for the purposes of this sub-paragraph " group " means a company which has one or more 51 per cent, subsidiaries, together with those subsidiaries.

(10) For the purposes of sub-paragraphs (6) and (7) above a person's interest is significant if its value exceeds 5 per cent, of the value of all the property held on the trusts or, as the case may be, comprised in the estate concerned, excluding any property in which he is not and cannot become beneficially entitled to an interest.

15 (1) Any question whether a person is connected with a company shall be determined for the purposes of this Schedule in accordance with the following provisions of this paragraph.

(2) A person is connected with a company if he directly or indirectly possesses or is entitled to acquire more than 30 per cent, of—

(a) the issued ordinary share capital of the company, or

(b) the loan capital and issued share capital of the company, or

(c) the voting power in the company.

(3) Where a person—

(a) acquired or became entitled to acquire loan capital of a company in the ordinary course of a business carried on by him, being a business which includes the lending of money, and

(b) takes no part in the management or conduct of the company,

his interest in that loan capital shall be disregarded for the purposes of sub-paragraph (2) above.

(4) A person is connected with a company if he directly or indirectly possesses or is entitled to acquire such rights as would, in the event of the winding up of the company or in any other circumstances, entitle him to receive more than 30 per cent, of the assets of the company which would then be available for distribution to equity holders of the company; and for the purposes of this sub-paragraph—

(a) the persons who are equity holders of the company, and

(b) the percentage of the assets of the company to which a person would be entitled,

shall be determined in accordance with paragraphs 1 and 3 of Schedule 12 to the [1973 c. 51.] Finance Act 1973, taking references in paragraph 3 to the first company as references to an equity holder and references to a winding up as including references to any other circumstances in which assets of the company are available for distribution to its equity holders.

(5) A person is connected with a company if he has control of it.

(6) References in this paragraph to the loan capital of a company are references to any debt incurred by the company—

(a) for any money borrowed or capital assets acquired by the company, or

(b) for any right to receive income created in favour of the company, or

(c) for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium thereon).

(7) For the purposes of this paragraph a person shall be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire.

(8) For the purposes of this paragraph a person shall be assumed to have the rights or powers of his associates as well as his own.

16 (1) In section 53 of this Act and in this Schedule—

• " control" has the meaning assigned to it by section 534 of the Taxes Act;

• "holding company" means a company whose business (disregarding any trade carried on by it) consists wholly or mainly of the holding of shares or securities of one or more companies which are its 75 per cent, subsidiaries ;

• " personal representatives " means persons responsible for administering the estate of a deceased person ;

• " quoted company" means a company whose shares (or any class of whose shares) are listed in the official list of a stock exchange ;

• " shares " includes stock ;

• " trade " does not include dealing in shares, securities, land or futures and " trading activities " shall be construed accordingly ;

• " trading company " means a company whose business consists wholly or mainly of the carrying on of a trade or trades ;

• " trading group " means a group the business of whose members, taken together, consists wholly or mainly of the carrying on of a trade or trades, and for this purpose "group" means a company which has one or more 75 per cent, subsidiaries together with those subsidiaries ;

• " unquoted company" means a company which is neither a quoted company nor a 51 per cent, subsidiary of a quoted company.

(2) References in section 53 of this Act and in this Schedule to the owner of shares are references to the beneficial owner except where the shares are held on trusts (other than bare trusts) or are comprised in the estate of a deceased person, and in such a case are references to the trustees or, as the case may be, to the deceased's personal representatives.

(3) References in section 53 of this Act and in this Schedule to a payment made by a company include references to anything else that is, or would but for section 53 be, a distribution.