Taxes Consolidation Act 1997 section 413

Profits or assets available for distribution

Section 413 defines key terms used in the group relief provisions of Chapter 5, in particular the concepts of "fixed-rate preference shares", "ordinary shares", "normal commercial loan", and "equity holder".

• Fixed-rate preference shares are shares issued wholly for new consideration, carrying only a fixed dividend that represents no more than a reasonable commercial return and conferring no conversion rights or rights to excess repayment proceeds.
• Ordinary shares are all shares other than fixed-rate preference shares; an equity holder is a person who holds ordinary shares or is a loan creditor in respect of a loan that is not a normal commercial loan.
• A normal commercial loan is one that carries no conversion rights, whose interest does not depend on the company's profits or asset values and does not exceed a reasonable commercial return, and whose repayment amount does not exceed the new consideration loaned.
• A person who provides funds for company assets and then uses those assets in their own trade is treated as an equity holder in respect of the related shares or securities; a bank making a normal commercial loan is only caught to the extent the cost of those assets is less than the amount of its loan.