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HMRC internal manual

Company Taxation Manual

Building societies: application of CT: permanent interest bearing shares (PIBS)

Building societies are allowed to issue PIBS as a means of strengthening their capital base. A PIBS is a share which is a permanent interest bearing share for the purposes of the General Prudential Sourcebook made by the Financial Services Authority (FSA) under the Financial Services and Markets Act 2000.

To qualify as PIBS, the shares must have the following characteristics:

  • Permanence. There can be no repayment with the exception of winding-up or with the consent of the FSA.
  • Interest bearing. The rate may be fixed or may vary by reference to market rates, and not directly related to the society’s profits.
  • Non-cumulative. Investors lose the right to any interest that is passed.
  • The payment of interest can be passed or abated if the society’s capital position would otherwise be impaired.
  • The writing down of the outstanding principal can absorb losses.
  • Rank behind ordinary building society shares on a winding-up.
  • Become subordinated debt if the building society converts to a plc.

Existing building society shares are like deposits. PIBS are different because they are perpetual and freely transferable.

The CGT treatment of PIBS is set out in CG53800 and CG56804.

PIBS are within the scope of the Accrued Income Scheme because they are negotiable interest bearing instruments.

The Accrued Income Scheme was repealed for CT purposes from 1 April 1996 and it does not apply to PIBS held by corporate bodies after that date. The Accrued Income Scheme continues to apply to PIBS held by persons other than companies.