Part 13

Tax avoidance
Chapter 1

Transactions in securities

Introduction

Overview of Chapter
682
This Chapter makes provision for counteracting income tax advantages from transactions in securities.

Provisions of Chapter
683
1
Sections 684 to 687 specify when a person is liable to counteraction of income tax advantages from transactions in securities.
2
Sections 695 to 700 make provision about the procedure for counteraction of such income tax advantages.
3
Sections 701 and 702 make provision for a clearance procedure.
4
Section 705 makes provision for appeals against counteraction notices.
5
Sections 712 deals with cases in which a person liable to counteraction dies.
6
Section 713 contains interpretative provisions.

Person liable to counteraction of income tax advantages

Person liable to counteraction of income tax advantage
684
1
This section applies to a person
(“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
... the transaction in securities, or any of the transactions in securities, is to obtain an income tax advantage, and
d
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, ...
d
altering or securing the alteration of the rights attached to securities.
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”.
4
This section is subject to no-counteraction notices issued under section 698A.

Receipt of consideration in connection with distribution by or assets of close company
685
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,
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
the relevant person
does not pay or bear income tax on the consideration (apart from this Chapter).
3
Condition B is that—
a
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
the relevant person
does not pay or bear income tax on the consideration (apart from this Chapter).
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.
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.
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.

Excluded circumstances: fundamental change of ownership
686
1
Circumstances are excluded by this section if—
a
immediately before the transaction in securities (or the first of the transactions in securities)
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.
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.

Income tax advantage
687
1
For the purposes of this Chapter
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
... 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
... 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
or an associate of the person
by way of a
... distribution at the time when
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—
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.

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

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

Receipt of assets of relevant company (circumstance E)
690. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Abnormal dividends: general
692. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Abnormal dividends: the excessive return condition
693. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Abnormal dividends: the excessive accrual condition
694. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedure for counteraction of income tax advantages

Notice of enquiry
695
1
An officer of Revenue and Customs may enquire into a transaction or transactions if—
a
the officer has reason to believe that section 684 (person liable to counteraction of income tax advantage) may apply to a person (“the taxpayer”) in respect of the transaction or transactions, and
b
the officer notifies the taxpayer of his intention to do so.
2
The notification may be given at any time not more than 6 years after the end of the tax year to which the income tax advantage in question relates.

Opposed notifications: statutory declarations
696. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Opposed notifications: determinations by tribunal
697. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Counteraction notices
698
1
If on an enquiry under section 695 an officer of Revenue and Customs determines that section 684 applies to the taxpayer, the income tax advantage in question is to be counteracted by adjustments, unless the officer is of the opinion that no counteraction is required.
2
The adjustments required to be made to counteract the income tax advantage and the basis on which they are to be made are to be specified in a notice served on the person by an officer of Revenue and Customs.
3
In this Chapter such a notice is referred to as a “counteraction notice”.
4
Any of the following adjustments may be specified—
a
an assessment,
b
the nullifying of a right to repayment,
c
the requiring of the return of a repayment already made, or
d
the calculation or recalculation of profits or gains or liability to income tax.
5
An assessment may be made in accordance with a counteraction notice at any time (without regard to any time limit on making the assessment that would otherwise apply).
6
This section is subject to—
...
- section 700 (timing of assessments ...), and
- section 702(2) (effect of clearance notification under section 701).
7
But no other provision in the Income Tax Acts is to be read as limiting the powers conferred by this section.

No-counteraction notices
698A
1
If on an enquiry under section 695 an officer of Revenue and Customs is of the opinion that no counteraction is required, the officer must serve notice on the person (a “no-counteraction notice”) stating that no counteraction is required and why.
2
The taxpayer may apply to the tribunal for a direction requiring an officer of Revenue and Customs to issue one of the following within a specified period—
a
a counteraction notice;
b
a no-counteraction notice.
3
Any such application is to be subject to the relevant provisions of Part 5 of
TMA
1970 (see, in particular, section 48(2)(b) of that Act).
4
The tribunal must give the direction applied for unless satisfied that there are reasonable grounds for not serving either a counteraction notice or a no-counteraction notice within a specified period.

Limit on amount assessed in section 689 and 690 cases
699. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of assessments ...
700
1
This section applies if section 684 (person liable to counteraction of income tax advantage) applies to a person because the person is in a position to obtain or has obtained an income tax advantage by falling within the circumstances mentioned in section 685(2)(c) or (3) when share capital is repaid.
2
An assessment to income tax made in accordance with a counteraction notice must be an assessment for the tax year in which the repayment occurs.
3
The references in this section to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company.
4
In subsection (3) “shares” includes stock and any other interest of a member in a company.

Clearance procedure ...

Application for clearance of transactions
701
1
A person may provide the Commissioners for Her Majesty's Revenue and Customs with particulars of a transaction or transactions effected or to be effected by the person in order to obtain a notification about them under this section.
2
If the Commissioners consider that the particulars, or any further information provided under this subsection, are insufficient for the purposes of this section, they must notify the person what further information they require for those purposes within 30 days of receiving the particulars or further information.
3
If any such further information is not provided within 30 days from the notification, or such further time as the Commissioners allow, they need not proceed further under this section.
4
The Commissioners must notify the person whether they are satisfied that the transaction or transactions, as described in the particulars, were or will be such that no counteraction notice ought to be served about the transaction or transactions.
5
The notification must be given within 30 days of receipt of the particulars, or, if subsection (2) applies, of all further information required.

Effect of clearance notification under section 701
702
1
This section applies if the Commissioners for Her Majesty's Revenue and Customs notify a person under section 701 that they are satisfied that a transaction or transactions, as described in the particulars provided under that section, were or will be such that no counteraction notice ought to be served about the transaction or transactions.
2
No such notice may be served on the person in respect of the transaction or transactions.
3
But the notification does not prevent such a notice being served on the person in respect of transactions including not only the ones to which the notification relates but also others.
4
The notification is void if the particulars and any further information given under section 701 about the transaction or transactions do not fully and accurately disclose all facts and considerations which are material for the purposes of that section.

Power to obtain information
703. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...

The tribunal
704. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appeals

Appeals against counteraction notices
705
1
A person on whom a counteraction notice has been served may appeal ... on the grounds that—
a
section 684 (person liable to counteraction of income tax advantage) does not apply to the person in respect of the transaction or transactions in question, or
b
the adjustments directed to be made are inappropriate.
2
Such an appeal may be made only by giving notice to the Commissioners for Her Majesty's Revenue and Customs within 30 days of the service of the counteraction notice.
3
On an appeal under this section that is notified to the tribunal, the tribunal may—
a
affirm, vary or cancel the counteraction notice, or
b
affirm, vary or quash an assessment made in accordance with the notice.
4
But the bringing of an appeal under this section ... does not affect—
a
the validity of the counteraction notice, or
b
the validity of any other thing done under or in accordance with section 698 (counteraction notices),
pending the determination of the proceedings.

Rehearing by tribunal of appeal against counteraction notice
706. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statement of case by tribunal for opinion of High Court or Court of Session
707. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cases before High Court or Court of Session
708. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of appeals against tribunal's determination under section 706
709. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appeals from High Court or Court of Session
710. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceedings in Northern Ireland
711. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

Application of Chapter where individual within section 684 dies
712
1
This section applies if an individual to whom section 684 (person liable to counteraction of income tax advantage) applies (or may apply) has died.
2
Any notice or notification to the individual under this Chapter may be given to the individual's personal representatives.
3
The provisions of this Chapter relating to any such notice or notification, to the making of a statutory declaration, to rights of appeal and to the giving of information must be read accordingly.

Interpretation of Chapter
713
1
In this Chapter—
- “
associate
” is to be construed in accordance with section 681DL, but as if subsection (4) of that section also included, as persons associated with each other, a person as trustee of a settlement and an individual, where one or more beneficiaries of the settlement are connected or associated with the individual;
- “
close company
” includes a company that would be a close company if it were resident in the United Kingdom,
- “company” includes any body corporate,
- “dividends” includes references to other ... distributions and to interest,
- “securities”—
  1. includes shares and stock, and
  2. in relation to a company not limited by shares (whether or not it has a share capital) also includes a reference to the interest of a member of the company as such, whatever the form of that interest,
- “trading stock” has the meaning given by section 174 of ITTOIA 2005, and
...
2
In the definition of “dividends” given by subsection (1), “
other distributions
” 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) (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company).
Words in s. 713 omitted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 12 para. 7(3)
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))
Words in s. 705(3) substituted (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 459(3)
S. 713 renumbered as s. 713(1) (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 63(11)(a)
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))
Words in s. 705(1) omitted (1.4.2009) by virtue of The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 459(2)
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))
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)
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))
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))
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))
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
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))
Ss. 706-711 omitted (1.4.2009) by virtue of The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 460
Ss. 696, 697 omitted (with effect in accordance with s. 34(8)(9) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 34(3)
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))
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))
S. 698(5) substituted (with effect in accordance with s. 34(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 34(5)
Words in s. 713 inserted (with effect in accordance with s. 33(8) of the amending Act) by Finance Act 2016 (c. 24), s. 33(7) (with s. 33(9)(10))
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)
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))
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))
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))
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)
Words in s. 700(1) substituted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by Finance Act 2010 (c. 13), Sch. 12 para. 5(a)
Word in s. 713(1) 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(11)(b)
S. 698A inserted (with effect in accordance with s. 34(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 34(6)
Words in s. 713 inserted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by Finance Act 2010 (c. 13), Sch. 12 para. 7(2)
S. 704 and cross-heading omitted (1.4.2009) by virtue of The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 458
Words in s. 701 heading omitted (retrospective to 1.4.2009) by virtue of Finance Act 2010 (c. 13), Sch. 12 paras. 6, 15(2)
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))
Words in s. 698(6) omitted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 12 para. 3(b)
S. 713(2) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 63(11)(c)
S. 684 disapplied (24.2.2022) by Finance Act 2022 (c. 3), Sch. 2 para. 49
Words in s. 705(4) omitted (1.4.2009) by virtue of The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 459(4)
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))
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))
S. 703 omitted (13.8.2009) by virtue of The Finance Act 2009, Schedule 47 (Consequential Amendments) Order 2009 (S.I. 2009/2035), art. 1, Sch. para. 49
Words in s. 700 heading omitted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 12 para. 5(b)
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))
S. 698(1) substituted (with effect in accordance with s. 34(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 34(4)
Words in s. 698(6) omitted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 12 para. 3(a)
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))
S. 699 omitted (8.4.2010 with effect in accordance with Sch. 12 para. 15(1) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 12 para. 4
S. 695 substituted (with effect in accordance with s. 34(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 34(2)