Land and Buildings Transaction Tax (Scotland) Act 2013 (LBTT(S)A 2013) Application
Section 58 LBTT(S)A 2013 states that section 1122 of the Corporation Tax Act 2010 (CTA10) has effect for the purposes of the following provisions:
- Section 14 – Meaning of “substantial performance”
- Section 22 – Deemed market value where transaction involves connected company
- Section 23 – Exceptions from deemed market value
- Section 57 – Linked transactions
- Paragraph 1 (Money or money’s worth), Paragraph 11 (Carrying out of works) and Paragraph 13 (Land transaction entered into by reason of employment) of Schedule 2 (Chargeable consideration)
- Schedule 4 (Relief for certain acquisitions of residential property)
- Part 5 (Withdrawal of relief) of Schedule 5 (Multiple dwellings relief)
- Schedule 8 (Relief for alternative finance investment bonds)
- Paragraph 17 (Qualifying sub-sale: consideration) of Schedule 10A (Sub-sale development relief)
- Schedule 17 (Partnerships), but see Paragraph 49 (Connected persons)
- Paragraph 17 (Loan or deposit in connection with grant or assignation of lease) of Schedule 19 (Leases)
Section 58 relies on CTA10 in order to define “connected persons”. CTA10 applies to the UK as a whole and falls under the jurisdiction of the UK Government. This guidance provides links to the relevant provisions of CTA10 in order to assist with understanding this complex area of UK taxation.
Please note that the links below are to an external website and Revenue Scotland cannot guarantee that the links are correct at the date they are viewed.
Connected Persons Definition
For convenience, summaries of these sections are set out below. However, it is recommended that the sections are also read as a whole for a full understanding as to how they operate.
Companies - Section 1122 CTA10
A company is connected with another company if:
- the same person has control of both companies (see s450 for the meaning of control),
- a person (A) has control of one company and persons connected with A have control of the other company,
- A has control of one company and A together with persons connected with A have control of the other company, or
- a group of two or more persons has control of both companies and the groups either consist of the same persons or could be so regarded if (in one or more cases) a member of either group were replaced by a person with whom the member is connected.
A company is connected with another person (A) if:
- A has control of the company, or
- A together with persons connected with A have control of the company.
In relation to a company, any two or more persons acting together to secure or exercise control of the company are connected with one another and any person acting on the directions of any of them to secure or exercise control of the company.
Individuals - Section 1122 CTA10
An individual (A) is connected with another individual (B) if:
- A is B’s spouse or civil partner,
- A is a relative of B,
- A is the spouse or civil partner of a relative of B,
- A is a relative of B’s spouse of civil partner, or
- A is the spouse or civil partner of a relative of B’s spouse or civil partner.
Trustees - Section 1122 CTA10
A person, in the capacity as trustee of a settlement, is connected with:
- any individual who is a settlor in relation to the settlement,
- any person connected with such an individual,
- any close company whose participators include the trustees of the settlement,
- any non-UK resident company which, if it were UK resident, would be a close company whose participators include the trustees of the settlement,
- any body corporate controlled by a company within the above two bullet points (for the purposes of this bullet point “control” is defined by section 1124 CTA10),
- if the settlement is the principal settlement in relation to one or more sub-fund settlements, a person in the capacity as trustee of such a sub-fund settlement, and
- if the settlement is a sub-fund settlement in relation to a principal settlement, a person in the capacity as trustee of any other sub-fund settlements in relation to the principal settlement.
Partnerships - Section 1122 CTA10
A person who is a partner in a partnership is connected with:
- any partner in the partnership,
- the spouse or civil partner of any individual who is a partner in the partnership, and
- a relative of any individual who is a partner in the partnership.
This does not apply in relation to acquisitions or disposals of assets of the partnership pursuant to genuine commercial arrangements.
Supplementary Definitions - Section 1123
Section 1123 provides supplementation to section 1122 for specific definitions.
The following definitions apply for the purposes of section 1122:
- “company” includes any body corporate or unincorporated association, but does not include a partnership
- “control” is to be read in accordance with sections 450 and 451 unless otherwise indicated
- “principal settlement” has the meaning given by Paragraph 1, Schedule 4ZA, Taxation of Chargeable Gains Act 1992 (TCGA 1992)
- “relative” means brother, sister, ancestor or lineal descendant
- “settlement” has the same meaning as in Chapter 5, Part 5, Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) , specifically section 620
- “sub-fund settlement” has the meaning given by Paragraph 1, Schedule 4ZA, TCGA 1992
For the purposes of section 1122, a unit trust scheme is treated as if it were a company and the rights of the unit holders are treated as if they were shares in the company.
For the purposes of section 1122, ‘trustee’, in the case of a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the property comprised in the settlement is for the time being vested, or in whom the management of that property is for the time being vested. Section 446(4), Income Tax Act 2007 does not apply for the purposes of this.
If any provision of section 1122 provides that a person (A) is connected with another person (B), it also follows that B is connected with A.
Control - Section 450
Section 1122 refers to ‘control’ throughout. For the purposes of section 1122, “control” should be read in accordance with sections 450-451 CTA10 (unless where otherwise indicated). Sections 450-451 provide the following:
A person (P) is treated as having control of a company (C) if P:
- is able to exercise, or
- is entitled to acquire
direct or indirect control over C’s affairs.
In particular, P is treated as having control of C if P possesses or is entitled to acquire:
- the greater part of the share capital or issued share capital of C,
- the greater part of the voting power in C,
- so much of the issued share capital of C as would, on the assumption that the whole of the income of C were distributed among the participators, entitle P to receive the greater part of the amount so distributed, or
- such rights as would entitle P, in the event of the winding up of C or in any other circumstances, to receive the greater part of the assets of C which would then be available for distribution among the participators.
Any rights that P or any other person has as a loan creditor are to be disregarded for the purposes of the assumption in the third bullet point above.
If two or more persons together satisfy any of the conditions above, they are treated as having control of C.
Rights to be attributed for the purpose of section 450 - Section 451 CTA10
Section 451 applies for the purposes of section 450 and provides supplementary detail when deciding if section 450 applies to a set of circumstances.
Subsection 2 provides that a person is treated as entitled to acquire anything which the person:
- is entitled to acquire at a future date, or
- will at a future date be entitled to acquire.
Subsection 3 provides that if a person:
- possesses any rights or powers on behalf of another person (A), or
- may be required to exercise any rights or powers on A's direction or behalf,
those rights or powers are to be attributed to A.
Subsection 4 provides that there may also be attributed to a person all the rights and powers:
- of any company of which the person has, or the person and associates of the person have, control,
- of any two or more companies within the above bullet point,
- of any associate of the person, or
- of any two or more associates of the person.
Subsection 5 provides that the rights and powers which may be attributed under subsection (4):
- include those attributed to a company or associate under subsection (3), but
- do not include those attributed to an associate under subsection (4).
Subsection 6 provides that such attributions are to be made under subsection (4) as will result in a company being treated as under the control of 5 or fewer participators if it can be so treated.
Meaning of Associate - Section 448
There are references throughout section 451 to ‘associate’. Section 448 defines associate for this purpose.
“Associate”, in relation to a person (P), means:
- any relative or partner of P,
- the trustees of any settlement in relation to which P is a settlor,
- the trustees of any settlement in relation to which any relative of P (living or dead) is or was a settlor,
- if P has an interest in any shares or obligations of a company which are subject to any trust, the trustees of any settlement concerned,
- if P:
- is a company, and
- has an interest in any shares or obligations of a company which are subject to any trust,
any other company which has an interest in those shares or obligations,
- if P has an interest in any shares or obligations of a company which are part of the estate of a deceased person, the personal representatives of the deceased, or
- if P:
- is a company, and
- has an interest in any shares or obligations of a company which are part of the estate of a deceased person,
any other company which has an interest in those shares or obligations.
In this section, “relative” means:
- a spouse or civil partner,
- a parent or remoter forebear (grandparent, great grandparent and so on),
- a child or remoter issue (grandchild, great grandchild and so on), or
- a brother or sister.