© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H5. Connecting persons
Timing of connection
- CGT connected party disposal: test at date of disposal/deemed date of disposal
"[23] Nonetheless, it appears to me, particularly in the light of the use of the verb in the present tense, "is", in section 18(1), that it is plain that the question of the connection must be considered at the time of disposal, which, as just mentioned, is dictated by section 28. The use of the present tense "acquires" in relation to the transaction, and the use of the present tense "is" in relation to the connection, in the very brief and clear section 18(1) really foreclose any argument that one can take different dates for the two things. The point is reinforced by the connection being with "the person making the disposal" which is also redolent of the present tense. Further, if one could take a different date for assessing the connection, how is one to choose a date? HMRC suggests that one should choose a date for the connection which best accords with the purpose of section 18. That would introduce subjectivity and unpredictability, not to mention a risk of circularity of reasoning, into a taxing statute, which seems to me to be thoroughly inappropriate." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
- All elements of test, including connection, may need to be satisfied at the same time
"[158] It is also worth pointing out that establishing a connection between SMCL and Mr Barnes at the date of the grant is not in fact sufficient for HMRC to succeed on this issue. Mr Barnes was not a development financier at that time and the land could only become exempt land (on the case advanced by HMRC) at a time when (a) Mr Barnes was a development financier, (b) SMCL was in occupation not substantially wholly for eligible purposes, and (c) Mr Barnes was (at that time) connected with SMCL. However, there was clearly no dispute that these three requirements were all satisfied together by some point in August 2014." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
Future connection
- Intention or expectation of state of affairs amounting in law to a connection may be relevant
"[140] ... The legislation is therefore capable of applying where it is intended or expected not only that a person who was already connected with an occupier (or intended occupier) at the date of grant would become a development financier, but also where the grantor intended or expected that a factual state of affairs would exist which would amount in law to a connection being created between the occupier and a person who is or later becomes a development financier. The exempt land test could then be satisfied provided that at the date of grant it was intended or expected that at some point before the end of the (expected) adjustment period a person would be in occupation and would at that time be connected with a development financier. Put another way, on the facts of this case the intention or expectation at the date of grant would need to be that the following state of affairs would exist at some point before the end of a 10 year period following the planned works: (a) Mr Barnes is a development financier, (b) Mr Barnes is connected with SMCL, and (c) SMCL is in occupation not substantially wholly for eligible purposes..." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
Two or more persons acting together to control company
- Two or more persons acting together to control company are connected in relation to that company
"(4) In relation to a company, any two or more persons acting together to secure or exercise control of the company are connected with—
(a) one another, and
(b) any person acting on the directions of any of them to secure or exercise control of the company." (CTA 2010 s.1122)
- Mere coincidence of voting the same way insufficient
"EVC submits and the Revenue do not dispute that the mere coincidence of voting the same way at general meetings is insufficient. Likewise, combining together to carry a particular resolution would not normally be sufficient to constitute acting together to exercise control either at all or on any continuing basis (cf IRC v Lithgows Ltd 1960 SC 405, 39 TC 270)." (Steele v. EVC International NV [1996] STC 785 at 795, Morritt LJ)
- Query the meaning of "secure"
Nevertheless I prefer to leave the point for decision in a case in which it arises. The judge construed 'secure' in the sense of 'safeguard'. EVC contends that this is wrong and that it should be construed in the sense of 'obtain'. I do not see why it should necessarily be confined to either sense to the exclusion of the other. The point is of some importance for the definition of connected persons applies in 40 different contexts in the 1988 Act alone. In those circumstances I prefer to leave it on the basis that I express no view on the construction of the word 'secure' in s 839(7) or on the correctness or otherwise of the decision of Lightman J on this point. For the same reasons it is unnecessary to deal with the associated point preserved by the Crown in the respondent's notice." (Steele v. EVC International NV [1996] STC 785 at 796, Morritt LJ)
- Shareholders' agreement giving rise to 'acting together'
"Of course persons may act together on an ad hoc basis. But it does not follow from this that if they agree to do so in advance that prior agreement prevents the subsequent action of the two of them being 'together'. The action remains the same in both cases, the prior agreement explains why, in the second instance, it took place. So in this case; the shareholders' agreement set out in great detail how EVC was to be constituted and administered. At all material times the agreement was in force and performed and observed by each of the shareholders. In my view, and in agreement with Lightman J, such performance and observation constituted the necessary 'acting together'. Accordingly I would support the judge's second proposition." (Steele v. EVC International NV [1996] STC 785 at 795, Morritt LJ)
- No requirement for the two together to be able to force their wishes on someone else
"I turn then to the fifth of the judge's propositions, namely, that the shareholders acted together to exercise control of EVC. The submission for EVC in this respect was that the concept of acting together to exercise control involves the constitution of a caucus for forcing its views on others because where there are only two shareholders they can only agree or disagree, and in neither of those events are they forcing their wishes on others. I do not agree. The exercise of control does not in its ordinary sense necessarily involve forcing the wishes of two or more persons on a recalcitrant third and the exercise of control at the level of general meetings as explained in the authorities certainly does not. Further the argument seems to assume that what constitutes acting together cannot also amount to the exercise of control. In my view there is no warrant for that assumption either." (Steele v. EVC International NV [1996] STC 785 at 795, Morritt LJ)
- Shareholders' agreement designed to stop one group gaining control against the wishes of the other is the exercise of control together
"The fact that the constitution of EVC was carefully crafted to avoid any one group of shareholders gaining control of EVC against the will of the other merely shows, which is not disputed, that neither group alone has control. To my mind that fact tends to emphasise that the performance of the agreement by both shareholders was the exercise of control by them rather than the contrary. Further the fact that EVC acquired a life of its own was one of the objects of the agreement (see para 5 of Sch 7), and the achievement of that object does not detract in any way from the undoubted control which the agreement conferred on the shareholders." (Steele v. EVC International NV [1996] STC 785 at 795, Morritt LJ)