| Unquoted |
| Control |
| Source of control |
| Cases where there is a beneficial interest in possession |
| Cases where there is no beneficial interest in possession |
S.105(1)(b) and s.105(1)(bb) both use the term
“unquoted”. “Control” is used in
s.105(1)(b) and in s.105(1)(cc) and (d). The definition of
“unquoted” is straightforward - it should be noted that
shares dealt in on AIM qualify as unquoted for this purpose. The
definition of “control” is more complex and is dealt
with in detail below.
Under s.105(1ZA), with effect from 1 April 1996, the definition of “unquoted” is "not listed on a recognised stock exchange". Shares dealt in on AIM are accordingly treated as "unquoted" for the purposes of business relief. If, however, shares dealt in on AIMare also listed on a recognised stock exchange overseas, they will not be“unquoted” and will not qualify for business relief. You should, therefore, check that AIM-listed shares are not listed elsewhere. If they do have another (overseas) listing, you should refer to SAV (Foreign) so that a “Foreign” valuer can consider whether they are listed on a recognised stock exchange.
S.269 IHTA 1984 defines control of a company as the "control of
powers of voting on all questions affecting the company as a whole
which if exercised would yield a majority of the votes capable of
being exercised on them".
The "powers of voting" have to be capable of being exercised
immediately before the transfer. It is immaterial that shares may
acquire voting rights at a later date or on a particular event. For
example, preference shares entitled to voting rights when the
preference dividend is x months in arrears have no "powers of
voting" unless or until that situation occurs. Similarly non-voting
shares which may be converted into voting shares have no "powers of
voting" prior to conversion, even if conversion may be effected
immediately by notice given by the non-voting shareholder at any
time. Such convertible shares are, for example, sometimes held by
venture capital investors.
S.269 requires only a majority, viz. over 50% of the
exercisable votes. It is immaterial that more than a simple
majority may be required on certain issues under the Articles or
company law.
Part of the share capital in some companies may comprise
shares which, although primarily non-voting, have voting rights on
limited questions. In such cases, a holding of full voting shares
carrying a majority of votes on all but the limited questions would
be unable to satisfy the unqualified "all questions'" test.
Accordingly s.269(4) provides that where voting rights are
restricted to:
"all questions affecting the company as a whole" must be read as
a reference to all such questions except any in relation to which
those limited powers are capable of being exercised.
The meaning of "capable of being exercised" in s.269(1) was
examined in
Walding vIRC(1996) STC 13. There the deceased owned a
factory used by a company in which she held 45 out of 100 shares.
24 shares were registered in the name of her four-year-old
grandson. The executors, claiming business relief under
s.105(1)(d), argued that the deceased held a majority of votes
capable of being exercised, because the grandson was too young to
vote. In finding for the Revenue, Knox J held that the words
"capable of being exercised" referred not to the personal capacity
of the shareholder but to a particular category of votes. Implicit
in s.269, he said, were two categories of votes. One category was
capable of being exercised only on questions that did not affect
the company as a whole, while the other category was capable of
being exercised on all questions affecting the company. It was the
latter that counted for the purposes of control of the company
within s.269.
If it appears that any of the limited questions fall outside
1. and 2. above and relief that relies on there being control
holding will have to be denied if those questions are taken into
account, the case should be referred to the Appeals Team.
S.105(1)(b) provides that control must be derived through shares
or securities. Voting power derived in some other way, for example
a Chairman's casting vote, cannot be taken into account. Control
may however be derived with the help of shares or securities in
another company controlled by the transferor.
Example A
| A has 49 out of 100 voting shares in X Ltd. A also has control of another company, Y Ltd, which owns a further 40 voting shares in X Ltd. A has control of X Ltd within the meaning of s.105(1)(b). [NB: The shares in company X should also be valued on a control holding basis under the "estate concept" principle.] |
For the purposes of S.105(1)(d) only, the
chairman’s casting vote can be taken into account in
determining whether a person has control.
The voting shares or securities to be taken into account for determining the existence of control are the same as those taken into account for valuation purposes. This means
Shares or securities only ever held by a transferor purely as
trustee should therefore be disregarded.
S.91 IHTA 1984 is relevant when a person ("the beneficiary")
would have been entitled:
The effect of s.91 is that for IHT purposes the
beneficiary’s interest is treated as a direct interest (and
not merely a right) in the assets constituting the unadministered
estate.
Example B
| A transfers 15 shares in company X when he owns 30
out of 100 shares. In addition, he is entitled to a half share of
his late mother’s estate which includes the remaining 70
shares in company X.
Although the Executors of his mother’s Will have yet to complete the administration of her estate, A is deemed to have a direct interest in 35 of the 70 shares in company X. As a consequence, although the shares previously held by his mother have yet to be registered in his name, A is deemed to hold 65 out of 100 shares immediately prior to the transfer of the 15 shares under consideration. |
The shares or securities to be taken into account are those comprised in the settlement immediately before the chargeable occasion (see this chapter at SVM111020). When a settlement is created on or after 22 March 2006, it may be subject to ten-yearly charges and exit charges even if a beneficiary has an interest in possession. Such settlements are treated like discretionary settlements - i.e. the only votes to be taken into account are those attached to assets in the settlement.
| Additional Guidance: SVM150000 |
