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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: shares accounted for as liabilities: excepted shares

Excepted shares

Shares are specifically excluded from the special tax rules relating to shares accounted for as liabilities if (CTA09/S521D):

  • it is a qualifying publicly issued share, or
  • it is a share that mirrors a public issue.

Qualifying Publicly-Issued Share

A share is a qualifying publicly-issued share where it was issued as part of an issue to non-connected persons and the company holding the shares or any persons connected with the company holding the shares hold less than 10% of the issue.

For the purposes of establishing connection in relation to the rules relating to excepted shares, the definition of connected is that used in the group relief rules at CTA10/S152.

A share that mirrors a public issue

There are two cases where a share will mirror a public issue:

Case 1

A company issues shares to non-connected persons (that is a public issue of shares) and within 7 days of that issue other group companies issue shares to that company on the same, or substantially the same, terms as the public issue. The latter shares are ‘mirroring shares’.

The total value of the ‘mirroring shares’ must not exceed the total value of publicly issued shares.

Case 2

This expands on Case 1 and allows for further chains of shares to be issued within a group and allows for one or more other group companies to issue shares to one or more other group companies on the same, or substantially the same, terms as the public issue.

As with Case 1, the total value of these ‘second level mirroring shares’ must not exceed the total value of the publicly issued shares.