Changes To Group Relief: Bank Preference Shares

The measure

The Government is amending rules relating to group relief so that financial institutions that raise tier 1 capital through issuing preference shares via a subsidiary do not lose the ability to form a group for tax purposes. The measure was originally announced in December 2008 and has already been followed up with draft legislation which was published on the 9 March.

Banks commonly raise capital by issuing preference shares to investors. To ensure the shares qualify as tier 1 capital their terms will often allow the bank to reduce or withhold dividend payments in times of financial stress. In addition, the dividend rate may step up after a certain period if the shares are not redeemed.