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HMRC internal manual

Capital Gains Manual

Groups: indexation allowance restriction: definitions

ICTA88/S838, TCGA92/S182 (4), TCGA92/S183 (3), TCGA92/S183 (4), TCGA92/S183 (5), TCGA92/S184 (1) & TCGA92/S184 (5)

The provisions apply the following definitions.

LINKED COMPANIES

Companies are linked companies if they are members of the same group or are associated with each other.

GROUP

A group comprises a company and its 51 per cent subsidiaries.

51 PER CENT SUBSIDIARY

A 51 per cent subsidiary is a company more than 50 per cent of whose ordinary share capital is owned directly or indirectly by another company.

ASSOCIATED COMPANIES

Two companies are associated if one controls the other or both are under the control of the same person or persons.

CONTROL

As defined in ICTA88/S416(2) to (6).

SECURITY

Security has the same meaning as in TCGA92/S132 (3)(b), so it includes loan stock or any similar security issued by any company, whether secured or unsecured.

DEBT ON A SECURITY

The normal definition of debt on a security applies, see CG53420+.

LINKED COMPANY DEBT ON A SECURITY

A debt on a security owed by a company is a linked company debt on a security where immediately after its acquisition by the company making the disposal the two companies were linked companies.

HOLDING

In relation to shares, a holding means a number of shares which are regarded as indistinguishable parts of a single asset for capital gains purposes.

REDEEMABLE PREFERENCE SHARES

Redeemable preference shares are shares described as such in the terms of their issue. They also include other shares which carry a preferential entitlement to a dividend or to any assets in a winding up, and in respect of which either or both of the following conditions are satisfied.

  • By virtue of the terms of their issue, the exercise of a right by any person or the existence of any arrangements, they are liable to be redeemed, cancelled or repaid, in whole or in part.
  • By virtue of any arrangements

    • to which the issuing company is a party, or
    • to which any other company is a party if it and the issuing company are linked at the time of issue,

the holder has a right to require another person to acquire the shares or is obliged in any circumstances to dispose of them or another person has a right or is in any circumstances obliged to acquire them.

Shares carry a preferential entitlement to a dividend if there are circumstances in which a minimum dividend will be payable on those shares but not on others.

LINKED COMPANY SHARES

Shares of a company are linked company shares where all the following conditions are satisfied.

  • Immediately after their acquisition by the company making the disposal the two companies were linked companies.
  • Their acquisition by the company making the disposal was wholly or substantially financed by one or more linked company loans or linked company funded subscriptions or by a combination of these.
  • The sole or main benefit which might have been expected to accrue from that acquisition was the obtaining of an indexation allowance on a disposal of the shares.

LINKED COMPANY LOAN

A linked company loan is a loan to the company making the disposal by another company where immediately after the acquisition of the shares by the company making the disposal the two companies were linked companies.

LINKED COMPANY FUNDED SUBSCRIPTION

A linked company funded subscription is a subscription for shares in the company making the disposal by another company which satisfies both the following conditions.

  • Immediately after the acquisition of the shares by the company making the disposal those two companies were linked companies.
  • The subscription was wholly or substantially financed, directly or indirectly, by one or more linked company subscription-financing loans.

LINKED COMPANY SUBSCRIPTION-FINANCING LOAN

A linked company subscription-financing loan is a loan made by a company to the subscribing company or any other company and which satisfies the following condition. The condition is that immediately after the acquisition of the shares by the company making the disposal

  • the company making the loan, and
  • the subscribing company, and
  • where the company to which the loan was made was not the subscribing company, that company

were linked companies.