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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Securities: debts: introduction: what is a debt?

FA93 and FA96

The advice in this section will help you to decide the appropriate tax treatment of debts within the capital gains regime. You should note, however, that the tax treatment of debts has been significantly altered by recent Finance Acts.

For companies, FA1993 introduced a new regime for the taxation of foreign exchange gains and losses (FOREX). As a result of this, much of the debt held by companies was removed from the scope of chargeable gains, see CG53470 and CG53776+. General advice on the chargeable gains aspects of the FOREX regime is at CG44000.

More general changes to the tax treatment of debts were introduced by FA96. These changes affect both individuals and companies, as follows.

  • For Corporation Tax purposes, the new regime applies to disposals on or after 1 April 1996. The majority of debts held by companies will not be within the capital gains charge at all. You are advised to read CG54000+ before considering the possible Capital Gains treatment of the debt.
  • For Income Tax purposes, the new regime applies to disposals on or after 6 April 1996. It applies to discounted debts only. For many debts held by individuals, the present chargeable gains rules will continue, and the general advice in this section will continue to apply. Advice on the new rules for discounted debt held by individuals is at CG54200+.