Companies under common control

Common settlor - automatic connection?

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It's a hypothetical (but could be real) situation, but trying to get my head around attribution of rights etc under CTA 2010 s451. In particular s451(4)(c) and s448(1)(c).

Ignoring all other factors, let's say we have companies A and B owned/controlled by two quite separate trusts but which have the same settlor. We can reasonably assume that there exists somewhere in the world a person P who is a linear descendant of the settlor, but P has got absolutely nothing to do with either of the companies or the trusts.

HMRC tell us that whilst rights attributed to P don't matter for the purposes of establishing whether either company is close, we can nevertheless attribute rights in determining control. Following what appears to be fairly straightforward language, it seems that we can attrubute to P the rights and powers of the trustees of both companies, meaning that A and B would treated as under common control. The consequence of this is that any two companies controlled by trusts with a common settlor will invariably be treated as connected even though there may be absolutely no other connection between the two. Is this correct, or have I overlooked some excluding provision?

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By Wilson Philips
14th Oct 2021 10:32

And it's not just trusts. Consider this one:

Company A 100% owned by X

Company B 100% owned by Y

Z has no involvement in either company but happens to be X's wife and Y's sister.

Because Z is not a participator in either company she is disregarded for the purposes of the close company tests (not that it matters in this case). However, following the legislation the rights etc of both her husband and brother can be attributed to her, so that the companies would be treated as connected for, say, capital gains purposes.

I feel as though I must be missing something, but I can't think what.

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Replying to Wilson Philips:
By More unearned luck
14th Oct 2021 19:12

Where is TD when you need her?

It's surprising, to me at least, that a tax liability is dependent upon whether or not the settlor has children.

Your query echoes Reeves [2018] UKUT 0293 where a remote connection nearly scuppered relief.

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Replying to More unearned luck:
By Wilson Philips
14th Oct 2021 19:27

I agree. If the settlor is still alive then by virtue of s448(1)(b) there’s no need for children. I had in mind the case of a trust settled long ago with the settlor having since departed.

I appreciate the link - I’ll have a look.

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Replying to More unearned luck:
By Wilson Philips
14th Oct 2021 22:12

Having read that case it seems that there would be a good argument that Z should not be attributed with the rights of X and Y in my example above.

Likewise, if the only link between two companies is a descendant of a common settlor, but which descendant is otherwise unconnected with either company, it seems that the same argument can be applied.

Thanks again. A Web serving a useful purpose for a change.

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