Commentary on Sections Structure of Chapters Overview Section 456: Securities issued to connected persons etc. at excessive price: subsequent transfers to connected persons
1826.This section prevents a loss arising on the transfer of deeply discounted securities where securities are issued at a value above that at which they are subsequently transferred and the issue and transfer are to connected persons. The section is based on paragraph 9A of Schedule 13 to FA 1996.
1827.The market value rules in sections 440 and 441 do not apply to securities on issue but only to subsequent disposals. The application of those rules therefore produces a loss where a security has been issued at above the market value to a connected person and is then transferred to another connected person at market value. These transactions thereby benefit from the fact that the market value rules do not apply on issue, and when they might apply, on a transfer, the price is at market value.
1828.Subsection (1) provides the general rule that no loss will arise where certain conditions are met. These conditions are set out in subsections (2) to (6).
1829.The conditions insubsections (2) and (3) must both apply, together with either the condition in subsection (4) or those in both subsections (5) and (6). These conditions provide that the person disposing of the security was either connected with the issuing company or controlled it and that the security was acquired on issue at above market value.
1830.It is considered unnecessary to rewrite paragraph 9A(2)(b) of Schedule 13 to FA 1996, because if the transferor were connected with the issuer condition C (paragraph 9A(1)(b) of that Schedule) would apply.
1831.Subsections (5) and (7) ensure that the rule also applies where a deeply discounted security is issued by a close company where the person to whom it is issued, together with others, controls the issuing company, wherever the company is resident.