»Ê¹ÚÌåÓýapp

TCGA92/Sch1A Part 2 and para 9

»Ê¹ÚÌåÓýapp guidance on establishing the level of investment is at CG73938. »Ê¹ÚÌåÓýappse examples illustrate the rules set out on that page, and interactions with the UK property richness test (see CG73934).

A non-UK resident person, A, owns 100% of the shares in Company B. B owns 100% of the shares in C and 10% of the shares in D. All shares referred to in the example are of one class and carry equal rights.

B’s only assets are its shares in C and D. B has a loan from the bank of £500,000 which is ignored.

C’s assets at the last balance sheet date, which was three months ago, were:

• An office in the UK worth £700,000, which C rents out to a third party
• Some stocks and bonds (unrelated to real estate) worth £200,000

D’s only asset at the last balance sheet date, which was three months ago, was an office in the UK worth £1,000,000, which D rents out to a third party.

In considering whether A holds an interest in an asset that derives 75% or more of its gross asset value from UK land, we would aggregate:

• UK land: 100% of the £700,000 UK land in B, and 10% of the £1,000,000 UK land in D (total £800,000)
• Total assets: the above, plus 100% of the £200,000 bonds in C.

So (800,000 / 1,000,000) 80% of B’s gross asset value is in UK land. B is UK property rich, so this leg of the test in sections 1A(3)(c) and 2B(4)(b) TCGA 1992 is met.

A has a 25% investment in B and so, as B is UK property rich, A has a substantial indirect interest in UK land. Here, because of the tracing rules, B is treated as having an interest in 10% of D’s land when working out if B is UK property rich and it is irrelevant that B (and therefore A) do not have a 25% investment in D as we are looking at the disposal of B only.

If, instead of A disposing of its interest in B, B was selling its shares in D, even though D is UK property rich there would be no charge under s2B(4) as B does not have a 25% investment in D (and so does not have a substantial interest in land because of its ownership of D).

Y is a partnership with a 100% investment in company Z. Z is UK property rich.

»Ê¹ÚÌåÓýapp partners in Y have the following rights under the partnership agreement:

• V has 20% of the votes, and 20% entitlement to income, but no rights to the assets of Z on the winding up of Z
• W has 10% of the votes, and 10% entitlement to income, and 100% entitlement to the assets of Z on the winding up of Z
• X has 70% of the votes, and 70% entitlement to income, but no rights to the assets of Z on the winding up of Z

All other rights and interests follow the entitlement to income.

»Ê¹ÚÌåÓýapp partnership is not a legal person or chargeable to tax on gains. »Ê¹ÚÌåÓýapp partnersâ€� interests in the partnership are not assets for the purposes of capital gains. Hence in considering whether V, W, or X has a substantial indirect interest in UK land, we would look through the partnership at their “investmentâ€� in Z by the measures outlined in CG73938. »Ê¹ÚÌåÓýapp rights attached to the shares and the partnership agreement will both be informative in terms of this measurement. If by any of those measures, a partner has 25% or greater investment in Z, then that partner will have a substantial indirect interest in land under Part 3.

V does not have a 25% or greater investment in Z by any of the measures outlined in CG73938, and so does not have a substantial indirect interest.

W has a less than 25% investment in Z in terms of votes and rights to income, but is entitled to 100% of the assets on the winding up of Z and so has a substantial indirect interest in Z.

X does not have any rights to assets on the winding up of Z, but has 70% of the votes and is entitled to 70% of the income of Z, so has a substantial indirect interest by both of those measures.

Y may also have invested in other assets separately to the investment in Z, and those assets may not be interests in UK land. »Ê¹ÚÌåÓýapp interests that the partners have in those assets through the partnership will not be relevant in looking at whether they have a substantial indirect interest in Z. Those other assets would also not be relevant in the calculation of whether Z is UK property rich (but see CG73942 on linked disposals).

This same analysis would also apply to an offshore Collective Investment Vehicle (CIV) that has made a transparency election under Part 3 of Sch 5AAA TCGA taking the place of Y in the above diagram.