VCM25120 - EIS: income tax relief: connection with the company: possession of share capital

ICTA/S291B (1); ITA/S170 (1)

The phrase ‘directly or indirectly possesses' entitles us to ‘look through' intermediaries to the ultimate owner.

Example 1

Mrs Carstairs acquires 25% of the share capital of Clear Windows Ltd and company X acquires a further 20%. Mrs Carstairs owns half the issued share capital of company X.

Mrs Carstairs possesses 25% of the shares directly and a further 10% indirectly, so she is connected with Clear Windows Ltd and does not qualify for relief.

Example 2

Mr Crow and Miss Gosling (who are not associates of each other) jointly subscribe £10,000 for 10,000 shares in Cool Shoes Ltd, being 56% of the issued share capital of the company. These shares are registered in their joint names.

In law they hold the shares on a bare trust. For the purposes of ICTA/S289 and Part 5 of ITA each of them is treated as having subscribed £5,000 for all 10,000 shares (see VCM25460). Neither of them can be said to 'directly possess' anything, but each of them 'indirectly possesses' rights which entitle them to receive part of the assets of the company available for distribution. Those rights amount to 28% of the total amount each, so, as that is less than 30%, they each qualify for relief.