Section 448(1) lists the associates of a person, P: any relative or partner of P; the trustees of any settlement of which P is a settlor; the trustees of any settlement of which a relative of P, living or dead, is or was a settlor; where P has an interest in shares or obligations of a company held in a trust, the trustees of that settlement; where P has an interest in shares or obligations of a company that are part of a deceased person's estate, the personal representatives; and where P is a company with an interest in shares or obligations held in a trust or an estate, any other company with an interest in them.

Participators and associates in close companies

Q: Why do associates widen the close company rules?

Associates reach into almost every part of the regime: Control. Section 451(4) allows the rights of a participator's associates to be attributed to the participator, which is how a family company with many small holdings becomes close. Rights are not attributed through a chain of associates of associates. See what is a close company. Loans. Section 455 applies to a loan to a participator or an associate of a participator, so a loan to a shareholder's adult son triggers the charge. See how s455 tax works. Benefits. Section 1069 extends the distribution rule in section 1064 to associates of participators. See benefits to participators treated as distributions. Exemptions. The £15,000 exemption from section 455 for full time employees is lost if the borrower has a material interest, meaning more than 5% of the ordinary share capital or of the assets on a winding up, counting what associates hold (section 457). Director status. The 20% ownership test that makes a manager a director under section 452 counts associates' holdings. Groups. A participator in a company that controls another is treated as a participator in the controlled company for sections 455 and 1064 (sections 455(5) and 1069(2)).

A participator is anyone with a share or interest in a close company’s capital or income, which includes shareholders, option holders, most lenders and anyone who can direct the company’s income or assets to their own benefit. An associate is a person linked to a participator by family, partnership, a trust or an estate, as listed in section 448 CTA 2010. Associates count in two ways: their rights are added to the participator’s when testing control, and loans and benefits given to them are taxed as if given to the participator.

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Who counts as a participator?

Section 454 of the Corporation Tax Act 2010 defines a participator as a person having a share or interest in the capital or income of the company. It then lists people who are specifically included:

anyone who possesses, or is entitled to acquire, share capital or voting rights in the company;
a loan creditor of the company;
anyone who possesses, or is entitled to acquire, a right to receive or participate in distributions, or in any premium paid to loan creditors on redemption; and
anyone entitled to secure that the company’s present or future income or assets will be applied directly or indirectly for their benefit.

Section 454(3) treats a person as entitled to do anything they will be entitled to do at a future date. HMRC’s manual at CTM60120 gives examples: a contractual right to require a shareholder to transfer shares, a right to have unissued shares issued, or rights under a trust deed. Someone with an option over shares is therefore a participator before exercising it.

HMRC also takes the view at CTM60160 that a beneficiary of a trust holding shares has an interest in the company, so that a loan to that beneficiary from a close company is within section 455 even though the beneficiary is not on the share register.

When is a lender a participator?

A loan creditor is defined in section 453. It covers a creditor for redeemable loan capital and for debts incurred by the company for money borrowed or capital assets acquired, for a right to receive income created in the company’s favour, or for consideration worth substantially less than the debt. Someone with a beneficial interest in such a debt is a loan creditor to the extent of that interest.

Three practical limits come from the legislation and HMRC’s guidance at CTM60130:

a bank lending in the ordinary course of a banking business is not a loan creditor;
an ordinary trade creditor is not a participator merely because it is owed money; and
hire purchase instalments would not normally be loan capital, because under the usual agreement the asset stays with the finance company until the final payment.

A director who has lent money to their own company is a loan creditor, and so a participator, even if they hold no shares.

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Who is an associate?

Section 448(1) lists the associates of a person, P:

any relative or partner of P;
the trustees of any settlement of which P is a settlor;
the trustees of any settlement of which a relative of P, living or dead, is or was a settlor;
where P has an interest in shares or obligations of a company held in a trust, the trustees of that settlement;
where P has an interest in shares or obligations of a company that are part of a deceased person’s estate, the personal representatives; and
where P is a company with an interest in shares or obligations held in a trust or an estate, any other company with an interest in them.

Which relatives are included?

“Relative” is narrow. Section 448(2) limits it to a spouse or civil partner, a parent or remoter forebear, a child or remoter issue, and a brother or sister. That means grandparents and grandchildren are in, but the statutory list does not include aunts, uncles, nephews, nieces, cousins, in laws or an unmarried partner.

HMRC adds three practical points at CTM60150. Separated spouses are still associated, but divorced persons are not. Other relatives are associated only where there is a blood relationship, so half brothers are associated but stepbrothers are not. And only individuals have relatives, so a corporate participator has no relatives at all.

What does “partner” mean here?

Partner means a fellow member of a partnership in which P is also a member. HMRC’s guidance at CTM60150 confirms that this covers general partnerships, limited partnerships, Scottish limited partnerships and limited liability partnerships. It does not cover someone described informally as a “business partner” outside a formal partnership. The practical consequence is that the members of a professional LLP who also hold shares in a service company are each other’s associates for that company’s close company tests.

How do trusts and estates create associates?

Trustees become P’s associates where P or a relative created the settlement, or where P has an interest in company shares held in the trust. “Settlement” is read widely and includes any disposition, trust, covenant, agreement or arrangement. HMRC notes at CTM60170 that the association is one way only: the trustees’ rights can be attributed to the settlor or beneficiary, but the settlor’s own rights are not attributed to the trustees. The trustees’ rights held in other capacities, such as shares they own personally, are not attributed.

Why do associates widen the close company rules?

Associates reach into almost every part of the regime:

Control. Section 451(4) allows the rights of a participator’s associates to be attributed to the participator, which is how a family company with many small holdings becomes close. Rights are not attributed through a chain of associates of associates. See what is a close company.
Loans. Section 455 applies to a loan to a participator or an associate of a participator, so a loan to a shareholder’s adult son triggers the charge. See how s455 tax works.
Benefits. Section 1069 extends the distribution rule in section 1064 to associates of participators. See benefits to participators treated as distributions.
Exemptions. The £15,000 exemption from section 455 for full time employees is lost if the borrower has a material interest, meaning more than 5% of the ordinary share capital or of the assets on a winding up, counting what associates hold (section 457).
Director status. The 20% ownership test that makes a manager a director under section 452 counts associates’ holdings.
Groups. A participator in a company that controls another is treated as a participator in the controlled company for sections 455 and 1064 (sections 455(5) and 1069(2)).

How does this work in practice?

HMRC’s example at CTM60160 is a useful test of understanding. Ten unconnected individuals each hold 10% of A Ltd, so it is not close. One of them, X, is the daughter of Y, who holds no shares, and Y is the brother of another shareholder, Z. Y’s associates X and Z hold 20% between them, but Y is not a participator, so Y cannot be one of the five for section 439 and the company is still not close. If A Ltd were close for some other reason, a loan to Y would nonetheless be caught by section 455, because Y is an associate of a participator.

Change one fact: Y is also a beneficiary of a trust that holds shares in A Ltd. Y is now a participator in his own right, the trustees’ holding and X’s and Z’s shares are attributed to him, and the company becomes close.

Illustration only. Mia owns 60% of a trading company and her brother owns 40%. Mia’s husband, who has no shares and does not work for the company, borrows £8,000 from it. He is Mia’s associate, so the loan is within section 455. The £15,000 employee exemption cannot help, because he is not a full time employee and, through his wife’s holding, would have a material interest anyway.

What mistakes come up most often?

Treating a spouse or child with no shares as outside the rules. They are associates, so loans and benefits to them are caught.
Assuming an unmarried partner, cousin or step relative is an associate. The statutory list in section 448(2) does not include them.
Ignoring director loan accounts in credit. A director owed money for funds lent to the company is a loan creditor and therefore a participator.
Forgetting trusts. Trustees of a family trust holding shares are associates of the settlor and of interested beneficiaries, which often tips the control test.
Applying the word “partner” loosely. Only members of a formal partnership or LLP count.

For the wider picture see the overview of close company rules and the director’s loan account guide.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.