INTM544070 - Thin capitalisation: interest as a distribution - ICTA88/S209(2)(da) (repealed)

Meaning of effective 51% subsidiaries

Up to 31 March 2004 the legislation at ICTA88/S209(2)(da) applied, but from 1 April 2004 it was repealed and the revised ICTA88/SCH28AA applies. See INTM560000 onwards for a more detailed consideration of the changes in Finance Act 2004.

In determining the maximum extent of the UK borrowing unit for the purposes of ICTA88/S209(2)(da), ICTA88/S209(2)(8A) provides for the inclusion of all '‘effective'’ 51% subsidiaries. This means that indirectly held subsidiaries of the top UK holding company can be included, provided that the top UK holding company has at least a 51% shareholding in those subsidiaries.

This is illustrated in the following example:

B Ltd can be included in the UK borrowing unit as it is an effective 51% subsidiary of the UK holding company, which holds 75% x 75% (56.25%) of the shares in B Ltd.