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HMRC internal manual

Company Taxation Manual

Groups & consortia: groups - entitlement to profits or assets available for distribution: option rights exist

ICTA88/SCH18/PARA5B (10)

This page applies in any case where there are option rights in existence in a relevant accounting period (CTM81005).

The guidance is expressed in terms of the profit distribution test (CTM81045), but the same principles apply for the asset distribution test (CTM81050).

In such a case, the percentage of the profits available for distribution to equity holders to which the parent company is beneficially entitled is calculated on the basis that option rights are effective (CTM81095). Then the percentage of those profits to which the parent company is beneficially entitled is calculated without regard to the option rights. The lower of these two percentages is the percentage of those profits to which the parent company is beneficially entitled.

There is an example at CTM81124.

But, where there are also:

  • rights which are limited, and/or
  • rights which vary for different accounting periods,

the guidance in CTM81105 applies.