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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Qualifying Corporate Bonds - inter-company transactions

For companies’ accounting periods beginning on or after 1 October 2002, a simple debt at interest or denominated in a currency other than sterling is a loan relationship. This means that such a debt is a QCB, by virtue of TCGA 1992 section 117(A1) see CG53700. This could suggest that where a company sells shares and the consideration is left outstanding, the sale could be an exchange of shares for a QCB. If this were the case, the computation of the gain or loss relating to the loan left outstanding would be made under section 116(10), see CG53711 and be deferred until the loan was repaid. However, such a debt only comes within the loan relationship rules by virtue of being a relevant non-lending relationship (s302(3)CTA 2009). The loan relationship rules will only apply to the relevant matters of the debt and not to the amount left outstanding as a whole (see CFM41020). A sale of shares with the consideration left on account will be a disposal and the full gain or loss will accrue on the sale, in accordance with the normal rules.

If, rather than leaving the consideration outstanding, a debenture is issued in exchange for shares, section 135 will apply to the transaction, and hence section 116(10) will also apply. If companies intend the provisions of section 116 to apply, they will ensure that there is an identifiable issue of a debenture.