Annex 1: Minor changes in the law Change 63: Investment trusts: disposal of shares or securities from a holding: section 1162
This change puts into legislation a well-known and established concession relating to the 15% holding limit condition.
Under section 842(1) of ICTA, the Commissioners of HMRC may approve a company as an investment trust only if it is shown to their satisfaction that the company meets certain conditions. One of these conditions is that no holding in a company (other than an investment trust or a company that would qualify as an investment trust if its shares were included in the official UK list) represents more than 15% of the investing company’s investments (“the 15% holding limit condition”).
Section 842(2), read with subsection (3)(b) of that section, provides for some exceptions. One of these is that if a holding in a company met the 15% holding limit condition when it was acquired or when it was last added to, it is treated as continuing to meet the condition until further shares or securities are acquired in that company.
In addition, where there is a disposal of shares or securities from a holding that exceeded the 15% holding limit and immediately after the disposal the holding represents 15% or less of the investing company’s investments, HMRC treats the holding as continuing to represent 15% or less by value of the investing company’s investments in later accounting periods until the holding is next enlarged.
This is set out in the HMRC Company Tax Manual as follows:
“If a company has a holding which, at 6 April 1965 or at the date of acquisition, exceeded the percentage limits, it may dispose of part of the holding to bring the reduced holding within the 15 per cent limit. So long as no addition is made to the holding, approval should not be withdrawn for any subsequent accounting period solely because the reduced holding has appreciated relative to the other investments so that it exceeds 15 per cent of the company’s investments.”
In section 1162(4) and (5) this concession is worded:
“(4)Subsection (5) applies if-(a)a company disposes of shares or securities from a holding it has in a company,(b)immediately before the disposal the holding represents more than 15% by value of the investing company’s investments, and(c)immediately after the disposal the holding represents 15% or less by value of the investing company’s investments.(5)For the purpose of determining whether the investing company meets condition E in accounting periods later than that in which the disposal was made, the holding is treated (if it does not already fall to be so treated under subsection (3)) as continuing to represent 15% or less by value of the investing company’s investments until the holding is next enlarged.”
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.