VCM25100 - EIS: income tax relief: connection with the company: the 30% tests

ICTA/S291B; ITA/S170

An individual is connected with a company if he or she, whether alone or together with any associate (see VCM25200 onwards), directly or indirectly possesses (see VCM25120), or is entitled to acquire (see VCM25110):

• more than 30% of the ordinary share capital (as defined at ICTAITA/S989) of the company or any subsidiary, or
• more than 30% of the total of the loan capital (see VCM25140) and issued share capital of the company or any subsidiary, or
• more than 30% of the voting power in the company or any subsidiary, or
• such rights as would, either in the event of a winding up or in any other circumstances, entitle the individual to receive more than 30% of the assets of the company which would then be available for distribution to equity holders of the company. (See VCM25150 for the meaning of ‘equity holders' and the way in which their entitlements are to be calculated.)

Voting power and other entitlements are ascertained in the first place by reference to the company's Memorandum or Articles of Association, but note that these can be overridden by any agreement made between the shareholders. Share capital is represented by the nominal value of the shares, excluding any premium paid.

There is one exception to these 30% tests of connection. This is dealt with in VCM25130.

References to a subsidiary on this page are to any company which is at any time in the three year straddling period (ICTA)/ Period A (ITA) –(see VCM20600) a subsidiary of the company issuing the shares.