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Section 405 CTA2010

In this example A Ltd is a 75% subsidiary of B Ltd even though B Ltd only owns 90% of the shares in A Ltd. A Ltd is not a consortium company as one company owns more than 75% of the shares in A Ltd.

At stage 2 A Ltd is a consortium company and B Ltd is a member of the consortium. B Ltd has not relinquished the whole of its interest in A Ltd and this must be reflected in an adjustment to the basic amount. There is no change in the interest in A Ltd held by C Ltd.

The amount of the income is restricted to the appropriate percentage of the basic amount.

The appropriate percentage is found by subtracting the ‘ownership percentage� at the end of the day from 100% even though B Ltd does not own 100% of the shares in A Ltd.

The ownership percentage is the lesser of:

• The percentage of the ordinary share capital of company A owned by company B;
• The percentage to which company B is beneficially entitled of any profits available for distribution to equity holders of Company A;
• The percentage to which company B would be beneficially entitled of any assets of Company A available for distribution to its equity holders on a winding up.

In this case the ownership percentage is 50% and the appropriate percentage is therefore 50%. Note that once this transaction has been completed C Ltd is now able to surrender to and claim losses from A Ltd as it is a member of a consortium. The 50% appropriate percentage therefore accurately reflects the change in access to group relief.