Read the original guidance here:
HMRC SDLT: SDLTM33410 – Connected persons – Para39

Understanding Section 1122 of the Corporation Taxes Act 2010

Section 1122 of the Corporation Taxes Act 2010 is important for those involved in tax matters related to corporations. This section applies specifically to Part 3 of the Act, which deals with various aspects of corporation tax.

Key Changes to Section 1122

When applying Section 1122, there are certain omissions or changes that are relevant:

• Omission of Subsection (7): This subsection addresses the connections between partners in a partnership. For the purposes of Part 3, just being members of the same partnership does not mean that partners are connected.
• Omission of Subsection (6)(c to e): This part pertains to trustees connected with a settlement. By removing these clauses, the focus is clearer when calculating amounts under the relevant paragraphs.

Clarifying Connections Between Partners

Part of understanding Section 1122 involves recognising how connections between partners in a partnership are treated. Under this section:

• Partners do not count as being connected just because they are in the same partnership. This is crucial for ensuring that tax provisions are aimed at avoiding tax avoidance schemes that misuse partnerships.
• When determining certain financial amounts, the removal of subsections related to trustees helps make sure that the rules are appropriately applied.

This makes it clear that while partners work together, their individual interests or actions within the partnership do not automatically create a taxable connection under the relevant parts of the tax law.

Understanding Anti-Avoidance Provisions

The anti-avoidance provisions in paragraphs 12 and 20 are designed to prevent tax avoidance schemes. Here’s how Section 1122 plays a role in this:

• The exclusions mentioned ensure that the provisions target actual cases of avoidance without being misapplied to legitimate partnerships.
• This focus helps maintain the integrity of tax regulations while allowing partnerships to function normally without unnecessary tax burdens.

Examples of Application

Let’s look at an example to illustrate these points:

• Consider a partnership consisting of three individuals – Alice, Bob, and Carol. Under Section 1122, just being part of the same partnership does not make Alice connected to Bob or Carol solely based on their partnership membership.
• So, if Alice and Bob decide to form a separate investment venture as partners, the focus remains on their specific roles and the agreements they enter into, rather than their connections through the first partnership.

This example highlights how Section 1122 provides a more straightforward approach to understanding partnerships in terms of tax obligations.

Why It Matters

The changes outlined in Section 1122 are important for several reasons:

• They clarify who is considered connected for tax purposes, which helps prevent misinterpretations that could lead to unnecessary tax complications.
• These changes help safeguard against tax schemes that may take advantage of partnership structures for illicit benefits.

Understanding these principles not only helps in compliance but also aids businesses and individuals in navigating the tax landscape effectively.

Further Information and Guidance

For more detailed information regarding these regulations, including how they apply to specific cases, consult the following resource: SDLTM33410 – Connected persons – Para39.