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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
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Groups & consortia: groups - entitlement to profits or assets available for distribution: equity holders - special rule

ICTA88/SCH18/PARA1 (6) sets out a special rule on persons treated as equity holders. This rule is subject to those in ICTA88/SCH18/PARA1 (7) on banks CTM81030.

The rule in ICTA88/SCH18/PARA1 (6) is that where:

  • a person has directly or indirectly provided new consideration for any shares or securities in the company, and
  • that person or any person connected with him or her uses for the purpose of his or her trade assets which belong to the company and in respect of which there is made to the company any of the allowances specified in (ICTA88/SCH30/PARA7 (1)(a) - (c)),

then that person, and no other, is treated as being:

  • an equity holder in respect of those shares or securities, and
  • entitled to any distribution of profits or assets attributable to those shares or securities.

This treatment applies even if those shares are fixed rate preference shares, or the securities are normal commercial loans.

So it follows that a person who is an equity holder under the above rule is treated as entitled to any:

  • dividends, or
  • interest on such shares or securities.

And those dividends, or such interest, are treated as a distribution to him, or her, as an equity holder.

Example

Company F buys out of its cash reserves 10,000 6% fixed rate £1 preference shares in Company S. The trade of Company F is growing soft fruit and selling it wholesale. Company F uses for the purpose of this trade freezers which belong to Company S. Company S receives writing down allowances in respect of the freezers.

So you treat Company F as:

  • an equity holder in respect of the 10,000 6% fixed rate £1 preference shares, and
  • entitled to any distribution of profits or assets attributable to those shares.