OT21103 - Corporation Tax Ring Fence and Supplementary Charge
Treatment of ACT: Redeemable Preference Shares
To prevent another method of breach of the corporation tax ring fence FA87/s46 (now ICTA88/s497(3) and ICTA88/s497(4)) extended the restrictions in ICTA88/s497(2) to redeemable preference shares where:
- the dividend is paid on or after 17 March 1987 and
- at the time the shares are issued, or at the time the dividend is paid, the company paying the dividend is under the control of a UK resident company.
"Control" has the meaning in ICTA88/s416.
The ACT is available for set-off only against the CT on the
non-ring fence profits of the company paying the dividend
An exception to the above rule, which applies only to ACT on
redeemable preference shares, is to be found in subsection 4 and
covers the situation where the proceeds of the issue of the shares
are used to meet ring fence expenditure incurred by the issuing
company or appropriated for such future expenditure. Where only
part of the share issue is used for ring fence expenditure an
appropriate apportionment is made. In this context, ring fence
activities exclude the acquisition of oil rights from a connected
person. Thus, in general terms, to the extent that the capital
raised is (to be) used for appropriate ring fence purposes, the ACT
can be set against tax on ring fence profits.
Redeemable preference shares, for this purpose, are
particularly defined in ICTA88/s497(6) and ICTA88/s497(7).
