No fixed rate but a rate that varies between two fixed levels. Preference share with 2 alternative fixed rates But, depending on the circumstances, a purposive approach might point to a different conclusion No - but this is finely balanced and may depend on facts of caseĪ distribution in liquidation is of surplus assets rather than of profits. Rate is not fixed and similar analysis applies as for tiered dividends - there is right to a return at one of two fixed ratesįixed rate preference share but with rights in liquidation Right to greater of specified sum or dividend paid in respect of another class of shares There is more than one fixed rate, and in context this is not a case where the singular should include the plural Rate is not fixed as can change depending on tier. Preference share with right to “tiered” dividends, meaning they increase on a pattern over time Some years no dividend will be paid so is more like equity than debt Holder knows return is fixed even when profits not available See McQuillan v HMRC UKUT 344įixed rate preference share with small couponĬould be fact dependent, particularly where there are avoidance concerns
Right to nothing is not a right to something. DescriptionĬTA10/S1119 is silent on rights other than fixed rate of returnįixed rate preference share with zero coupon If arrangements appear to reflect uncommercial elements designed to circumvent the purpose of the legislation in identifying ordinary share capital the principles will be applied accordingly.
Some of the issues are finely balanced, and the table is, except where authority is quoted, only a guide. The definition appears fairly straightforward but has given rise to a number of issues, addressed in the following table. The aim of the current tax legislation is to exclude instruments that are in legal terms shares but in effect represent perpetual debt, namely fixed rate preference shares. That distinction remains relevant today and is expressed in the current definition. The concept of “ordinary capital” originated in the wartime Excess Profits Duty at F(2)A1915/SCH4/PART1/PARA6, for the purposes of applying the tax to a subsidiary as though it were a branch of the parent the aim of that rule being to distinguish equity capital from loan capital for this purpose.
(There are, though, some slightly different definitions of ordinary shares or shares for specific purposes, see for example CTA10/S160 (group relief, CTM81010) and CTA09/S931U (distribution exemption, INTM653050)). The general meaning of ordinary share capital (see CTM00511) depends on identifying and excluding capital to which the holders have a right to a dividend at a fixed rate but have no other right to share in a dividend.
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