»Ê¹ÚÌåÓýapp

CTA10/S1037 Requirement as to reduction of seller’s interest as shareholder

If, immediately after the company purchases its own shares, the seller still holds an interest as a shareholder, it must be substantially reduced. »Ê¹ÚÌåÓýapp seller’s interest includes the combined interest of any associates of the seller.

Associates, for the purpose of this part of the Act, are defined under CTA10/S1059. »Ê¹ÚÌåÓýappy include, amongst others:

• Spouses living together
• Civil partners of each other living together
• Person under age of 18 and his/her parents
• A person and a company he/she is connected with and includes any company controlled by that company
• Personal representatives of a deceased person

»Ê¹ÚÌåÓýapp seller’s interest is substantially reduced if, and only if, the seller’s subsequent interest after the company purchases its own shares, is not more than 75% of the seller’s prior interest.

»Ê¹ÚÌåÓýapp seller’s prior interest means the total nominal value of the shares owned by the seller immediately before the purchase, expressed as a fraction of the issued share capital of the company at that time.

{#}»Ê¹ÚÌåÓýapp seller’s subsequent interest means the total nominal value of the shares owned by the seller immediately after the purchase, expressed as a fraction of the issued share capital of the company at that time.

EXAMPLE

A company has issued share capital of 100 £1 ordinary shares and are held by

Mr Q	30
Mrs Q	5
Mr R	15
Mr S	25
Ms T	25
Total	100

• Mr and Mrs Q are spouses
• Mr R is the son of Mr and Mrs Q and is over the age of 18

»Ê¹ÚÌåÓýapp company wishes to purchase its own shares from Mr Q.

Mrs Q is an associate of Mr Q as she is his spouse so her shares are added to Mr Q’s. Mr R is not an associate under CTA10/S1059 as he is over the age of 18 therefore his interest is not added. »Ê¹ÚÌåÓýapprefore the aggregated interest for Mr Q is 35 shares â€� 35/100 = 35%.

As it is before the purchase of own shares by the company, the prior interest is 35%. Once the company has acquired the shares, they are treated as being immediately cancelled so the share capital is now 70 £1 ordinary shares. Mr Q has no longer an interest in his own capacity but through an associate, Mrs Q, who has 5 shares. »Ê¹ÚÌåÓýapprefore Mr Q’s aggregate interest post purchase, the subsequent interest, is 5/70 = 7%.

75% of the prior interest of 35% is 26.25%. As the subsequent interest of 7% is not more than 26.25%, the substantial reduction test has been satisfied.

»Ê¹ÚÌåÓýapp minimum amount of shares that need to be repurchased so that the substantial reduction test is met can be calculated using:

A X B

4B-3A

where,

A = nominal value of the seller’s prior interest

B = issued share capital prior to the company purchase of its own shares

»Ê¹ÚÌåÓýapp answer should be rounded up.