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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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VCT: VCT qualifying holdings: meaning of ‘relevant fixed rate preference shares’


Fixed-rate preference shares are defined as shares:

  • which were issued wholly for new consideration (see CTM15140), and
  • which do not carry any right either to conversion into other shares or securities of any description or to the acquisition of additional shares or securities, and
  • which do not carry any right to dividends other than dividends which:

a) are of a fixed amount or at a fixed-rate percentage of the nominal value of the shares, and

b) together with any sum payable on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued.

We take a broad view of what is a ‘reasonable commercial return’.

This definition is slightly different from the definition of the same phrase given in CTA10/S160.

Shares which carry no dividend right at all cannot be fixed-rate preference shares. A ‘fixed rate’ means an unchanging rate; thus a rate which is specified as 5% for the first 5 years and 10% thereafter is not fixed until the first five years are over.

‘Relevant’ fixed-rate preference shares are ones which do not currently carry voting rights. (Normally fixed-rate preference shares carry voting rights only in certain specified circumstances, for example if the company defaults on the payment of dividends on the shares).