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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Groups & consortia: groups - entitlement to profits or assets available for distribution: equity holders - banks

ICTA88/SCH18/PARA1 (7) limits the extent to which a bank is treated as an equity holder under the special rule in ICTA88/SCH18/PARA1 (6) CTM81025when certain conditions are met.

The conditions are that:

  • the person who has directly or indirectly provided new consideration for any shares or securities in the company is a bank, and
  • the only new consideration the bank provides is by way of a normal commercial loan made in the normal course of its banking business, and
  • the cost to the company concerned of any assets,

    • which belong to the company, and
    • in respect of which there is made to the company any of the allowances specified in (a) to (c) of ICTA88/SCH30/PARA7 (1), and
    • which are used for the purposes of its trade by the bank (or a person connected with the bank),
    • if the company has no profits arising in that accounting period, £100 (under ICTA88/SCH18/PARA2 (1)(b)).

      is less than the amount of that new consideration.

    When these conditions are met, then you treat the bank as an equity holder in respect of only that part of that new consideration which is equal to the cost of such assets. So you treat the bank as receiving as a distribution only the interest etc attributable to that part of the new consideration.


    Company W trades as a lessor of computer equipment. Bank A Plc lends Company W £5,000 on normal commercial terms.

    Company W buys a computer for £3,750 and leases it to Bank A Plc. Company W receives writing down allowance in respect of this computer.

    So Bank A Plc is treated as an equity holder in respect of only £3,750 of the loan of £5,000. The bank is treated as receiving as a distribution only the interest that is attributable to £3,750 of the loan.