Introduction Overview Chapter 3: Charge to tax in case of loan to participator Section 457: Section 456: meaning of “material interest in a company”
1390.This interpretative section is based on section 420(2) of ICTA.
1391.The closing sentence of section 420(2) of ICTA attracts, with modifications, section 168(11) of ICTA. Section 168(11) of ICTA has been rewritten in section 68 of ITEPA and repealed. This section largely replicates section 68 of ITEPA.
1392.Section 168(11) of ICTA is reproduced below for the reader’s convenience, as it stood before ITEPA and as modified by section 420(2) of ICTA.
“A person shall be treated as having a material interest in a company if he, either on his own or with one or more associates, or if any associate of his with or without such other associates –(a)is the beneficial owner of, or able, directly or through the medium of other companies, or by any other indirect means, to control more than 5 per cent of the ordinary share capital of the company, or(b)in the case of a close company, 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, give an entitlement to receive more than 5 per cent of the assets which would then be available for distribution among the participators.In this subsection “associate” has the same meaning as in section 417(3), except that for this purpose “relative” in that subsection has the meaning given by section 160(6),and “participator” has the meaning given by section 417(1).”
1393.The closing sentence of section 420(2) of ICTA provides for the words following “417(3)” to be omitted, and the words in strikethrough reflect this. But this omission merely disapplies the definition of “relative” in section 160(6) of ICTA. It does not extend to the underlined words, because omitting the underlined words would leave “participator” undefined. FA 1989 inserted the underlined words into section 168(11) of ICTA by way of consequential amendment, and it appears that the need to make a further consequential amendment to section 420(2) of that Act was overlooked.
1394.Subsection (2)(b) has been compressed for the sake of brevity and consistency with section 452(2)(b)(ii). See the commentary on that provision.