IFM40266 - Eligibility criteria: election to treat listed securities as unlisted
FA22/SCH2/PARA13(3)
An election can be made under PARA13(3) which deems the investment strategy condition to be satisfied by a company which directly acquires listed or traded equity securities or other interests deriving their value from them, outside of the exceptions detailed above. The election treats all 鈥榬elevant equity securities鈥� as if they were not listed or traded securities. PARA13(4) defines which securities constitute 鈥榬elevant equity securities鈥�.
Any election must be notified to HMRC and only has effect while the company is a QAHC. The only way an election can be revoked is where the company ceases to be a QAHC.
Where an election has effect, the distribution exemption at CTA09/S931 (INTM650000+) will not apply to distributions received by the electing company from any relevant equity securities. This includes relevant equity securities held as part of a stake-building exercise prior to a public takeover bid or those held on exit of an investment by way of initial public offering.
There are various rules at PARA 13(7) 鈥� (9) to prevent a QAHC from making an election and then attempting to receive distributions from relevant equity securities in a way in which the dividend exemption could still apply.
Example
A Ltd鈥檚 sole investment is in a wholly-owned, unlisted subsidiary, C Ltd. C Ltd invests in equity securities in X Plc and Y Plc. Those securities in X Plc and Y Plc are listed on a recognised stock exchange and constitute relevant equity securities of C Ltd (but not of A Ltd). C Ltd makes an election under PARA13(3) to treat the securities as if they were not listed. C Ltd later receives a dividend of 拢750,000 from Y Plc which is then paid up to A Ltd as a dividend.
The holding of relevant equity securities by C Ltd will not prevent C Ltd or A Ltd from satisfying the investment strategy condition because of the PARA13(3) election made by C Ltd.
C Ltd will be taxed on the 拢750,000 dividend it receives from Y Plc because the distribution exemption at CTA09/S931 will not apply. A Ltd will not be taxed on the dividend it receives from C Ltd because the distribution exemption will apply.