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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: shares acting like debt

Shares with similarities to debt

CTA08/S303(4) makes it clear that debts derived from rights granted by shares are not loan relationships. Shares are dealt with under the chargeable gains rules.

Some shares have similar characteristics to debt, such as redeemable fixed rate preference shares. These shares

  • will be redeemed
  • offer a fixed return on capital

and so the cash flow looks more like an investment by way of a loan than a subscription of share capital. CFM31080 gives an example.

Legislation was introduced by FA (No 2) 2005 to bring certain shares, and arrangements involving shares, into the loan relationships legislation where they give a return similar to the return on a debt. This is covered at CFM45000.

Some debt has similar characteristics to shares, for example where the creditor’s return is linked to the increase or decrease in the value of a company’s shares. There is an example at CFM31090

There are special rules to deal with debt linked to the value of assets, such as shares - see CFM37600.