GREIT02118 - Conditions and Tests: maximum shareholding: meaning of direct and indirect control of voting rights

The definition of a holder of excessive rights (HoER) in regulation 1(2) SI 2006/2864 contains the terms ‘control’, ‘directly’, ‘indirectly’ and ‘beneficially entitled’. None of these are defined specifically for this purpose. See GREIT02115 for the definition of ‘company’ and meaning of ‘beneficially entitled’. HMRC will interpret the other terms consistently with that. Some examples are set out below. In them, C is UK-REIT and A is a company that may be a HoER.

Control of voting rights

None of the Taxes Acts definitions of control is directly applicable here. This is because those definitions apply only for specified purposes, and are generally defined in the context of controlling a company, rather than controlling voting rights in the company. In this context, someone controls the voting rights if they have the power to check, restrain or govern how the votes are used.

Because the normal Taxes Acts definitions of control are not picked up, the meaning here does not therefore pick up the concept of associated and connected persons that applies as part of the section 416 ICTA definition for 'close' company purposes. Nor does it pick up control as a result of entitlements to acquire rights in the future. The meaning is more akin to the concepts in section 840 ICTA of effective power to control.

Indirect control of voting rights

This might exist where shares in C are held by an intermediate entity, such as another company or a trust, over which A has control – and can therefore direct how the intermediary exercises votes. For example, A owns 8% of the shares in C, and A also owns 100% of the shares in company B, which in turn owns 4% of the shares in C. A owns directly 8% of the shares in C, and controls 4% indirectly. A would therefore control, directly and indirectly, 12% of the shares in C.

Company X owns 9% of the shares in C. X also owns 30% of Company Y, which in turn owns 4% of the shares in C. X owns directly 9% of the shares in C, but because X is unlikely to able to direct how Y exercises its votes in respect of C, X’s proportion of the voting rights attached to the 4% of shares owned by Y do not count as indirectly held by X.