STSM042480 | Exemptions and reliefs: reliefs: Section 77A - “Particular person” or “particular persons together”

To be disqualifying arrangements as set out in section 77A(2) FA1986, there have to be arrangements where it is reasonable to assume that a purpose or one of the purposes of the arrangements is for a particular person or particular persons together to obtain control of the acquiring company.

In respect of “particular persons together” this is more than a numerical test. It must be reasonable to assume that the parties to the arrangements intend to act in such a way that particular persons together obtain control of the acquiring company.

For example, two shareholders, Person A and Person B, own 50% of a trading company. A third party Person C agrees to invest in the company to provide funds for expansion in return for a 10% shareholding.

A share for share exchange is therefore carried out and the new holding company issues shares of the same class, number and proportions to Person A and Person B thereby satisfying the conditions in s.77 (3) (b) – (h) FA1986. Shortly afterwards, Person C invests in the new holding company in return for a 10% shareholding.

In these circumstances, there are no disqualifying arrangements unless Person C is acting together with either Person A or Person B.

Reorganisations where no purchaser(s) have been identified.

A reorganisation in advance of a potential future sale where no purchaser(s) has been identified will not be disqualifying arrangements for the purposes of s.77A FA1986. For example, there may be a reorganisation of a group of companies to make the group better structured for sale in the future.

“Arrangements” includes any agreement, understanding or scheme (whether or not legally enforceable).

“Control” is to be read in accordance with section 1124 CTA2010.

STSM042460 provides information on what are ‘disqualifying arrangements’.