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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: shares with guaranteed returns: non-qualifying shares: the income producing assets test: groups

Prevention of multiple charges in groups of companies

This guidance applies to companies that hold shares up to 21 April 2009

The remaining categories of income producing assets are designed to prevent multiple charges arising within groups of companies. Imagine the following structure, where A and B are simple holding companies;

A Ltd  
  parent of
  B Ltd
  parent of
  C Ltd
  which holds
  Interest like assets

In each case the shareholdings are 100% of the ordinary share capital. If company C holds assets, or is party to arrangements, which give an interest-like return, then the value of its shares may increase in an interest-like manner. In turn, the shares in company B will also increase in the same interest-like way. The shares in C will be within S527 in the hands of company B, unless they are let out under the income producing assets test. But in either case, it would be wrong for there to be a charge on company A under S527C in respect of the shares in company B.

So the remaining categories of income producing assets are designed to prevent this, and cover shares which:

  • are within S524;
  • are within S527, or would be but for the fact that the company’s assets are income producing (CFM45160);
  • are within S529, or would be but for the fact that the shares are excepted shares (CFM45210);
  • are within S532 (CFM45250);
  • are shares in a company the whole or substantially the whole by fair value of whose assets are themselves income producing assets.

Returning to the example above; if the C shares are within the increasing value condition, the B shares would not be within S527 because the assets of B (the shares in C) are income producing, being shares within S527 (S527(4)(b)). Similarly, if the assets of C are income producing so that there is no charge on company B, the B shares would still not be within S527 for the same reason, namely that the assets of B (the C shares) are themselves income producing, being shares that would be within condition 1 but for the fact that C’s assets are income producing.