Income Tax Act 2007 section 685

Receipt of consideration in connection with distribution by or assets of close company

Section 685 sets out one of the circumstances in which HMRC may counteract an income tax advantage obtained through transactions in securities involving close companies, specifically where a relevant person receives consideration connected with the distribution or movement of close company assets without bearing income tax on it.

• Condition A applies where a securities transaction results in a relevant person receiving untaxed consideration linked to the distribution, transfer, realisation, or application of close company assets, or the movement of assets between close companies.
• Condition B applies where a relevant person receives untaxed consideration from a securities transaction involving two or more close companies.
• The meaning of "relevant consideration" varies depending on the type of transaction: for asset distributions or liability settlements it covers distributable assets, future receipts, or trading stock value; for inter-company transfers it must take the form of share capital or securities representing such assets.
• Non-redeemable share capital is only caught when it is actually repaid, including any distribution on winding up, and assets available for distribution include those distributable by subsidiary companies the close company controls.