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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 - subsidiary assets available to


The amount of the subsidiary’s assets which are to be treated as available for distribution to equity holders as such (CTM81010equity holders as such) on a winding-up is an amount equal to:

  • any excess of:

    • the total amount of the assets of the company over,
    • the total amount of its liabilities which are not liabilities to equity holders as such,

      as shown on its balance sheet at the end of the relevant accounting period CTM81005(under ICTA88/SCH18/PARA3 (1)(a)); or

      • if there is no such excess or no such balance sheet, £100 (under ICTA88/SCH18/PARA3 (1)(b)).

    For the purpose of ICTA88/SCH18/PARA3 (1)(a) (first bullet above), you should regard the amount repayable to fixed rate preference shareholders (CTM81010[]()fixed rate preference shares) as a liability which is not a liability to equity holders as such. But, if the fixed rate preference shareholder is an equity holder under ICTA88/SCH18/PARA1 (6) - CTM81025, then you do treat the amount repayable as a liability to an equity holder as such.

    There is guidance at CTM81055 on the computation of ‘the total amount of the assets’ for the purposes of ICTA88/SCH18/PARA3 (1)(a) where the subsidiary has made a loan to, or acquired shares in, an equity holder, or any person connected with the equity holder.


    Company M’s balance sheet at 31 December 1995 looks like this:

    Land and buildings £100,000
    Equipment £50,000
    Stock £25,000
    Total £175,000
    Loan from Mrs OM £40,000
    Net assets £135,000
    Represented by  
    5% preference shares £10,000
    Ordinary shares £50,000
    Retained profits £75,000
    Total £135,000

    The loan of £40,000 was made by the principal shareholder, Mrs OM. The loan carries interest at 5% and is made on terms that she can convert the loan into ordinary shares at par. This is not, therefore, a ‘normal commercial loan’ for the purpose of ICTA88/SCH18/PARA1 (5) (CTM81010 ‘normal commercial loan’).

    Mr PM, who is Mrs OM’s husband, owns the 10,000 5% preference shares. He paid £10,000 cash for them in 1989. The shares carry rights to a fixed dividend of 5% each year, and to repayment at £1 each in 2001. They have no other rights. These are, therefore fixed rate preference shares for the purpose of ICTA88/SCH18/PARA1 (3) (CTM81010 ‘fixed rate preference shares’).

    For the purpose of arriving at the ‘assets available for distribution to equity holders on a winding-up’ in ICTA88/S413 (7)(b):

    • the loan to Mrs OM, which is not a ‘normal commercial loan’, is a liability to an ‘equity holder’ as such, and
    • the fixed rate preference shares owned by Mr PM are not a liability to an ‘equity holder’.

    The ‘assets available for distribution to equity holders’ are, therefore, £165,000. This is calculated as follows

    Total assets £175,000
    Total liabilities other than to equity holders  
    5% preference shares £10,000
    Total £165,000