Corporation Tax Act 2010 section 1041

Section 1040: effect of entitlement to profits

Section 1041 provides a test based on entitlement to profits for determining whether a seller's interest as a shareholder in the purchaser's group has been substantially reduced following a share purchase.

• The seller's interest in the purchaser's group is not treated as substantially reduced if, after the purchase, the seller would be entitled to a share of profits from one or more group members (assuming all members distributed all available profits), and the new entitlement exceeds 75% of the old entitlement.
• The "new entitlement" is the seller's share of profits immediately after the purchase, expressed as a fraction of the total distributable profits of every group member that is either a relevant company or a 51% subsidiary of a relevant company.
• The "old entitlement" is the equivalent fraction calculated immediately before the purchase took place.
• Certain supplementary rules from section 1038 (subsections (2) to (5)) also apply for the purposes of this section, covering matters such as how profits available for distribution are to be determined.