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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Groups: indexation allowance restriction: not redeemable preference shares

The financing test is satisfied where the chain of provision of finance for the subscription for shares includes a linked company loan.


Company A lends money to company B to acquire shares in company C. If

  • B and C are linked on the acquisition and disposal by B of the shares in C, and
  • A and B are linked immediately after B’s acquisition of the shares

then the loan is a linked company loan and the financing test is satisfied.


Company A lends to company B, which subscribes for shares in company C, which subscribes for shares in company D. Company C disposes of the shares in D. All four companies A - D are linked at the relevant times.

The financing test in TCGA92/S183 (3)(b) requires C’s acquisition of the shares in D to be financed by a linked company loan (which is not the case in this example) or a linked company funded subscription.

To establish that B’s acquisition of shares in C is a linked company funded subscription within Section 183(4) it is necessary to establish that the subscription was financed by a linked company subscription-financing loan. A’s loan to B satisfies the definition of linked company subscription-financing loan in Section 183(5), so the financing test is satisfied in relation to C’s acquisition of the shares in D.