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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Qualifying corporate bonds: loan relationships: exempt circumstances

TCGA92/S117A, TCGA92/S117B, TCGA92/S117A (9)

This guidance describes the capital gains aspects of the regime for Loan Relationships for companies from 1 April 1996 until the first accounting period to start on or after 1 October 2002. For periods beginning on or after 1 October 2002 see CG54100+

FA1996 introduced new TCGA92/S117A and TCGA92/S117B. These apply to certain assets representing loan relationships of a company held in exempt circumstances.

Exempt circumstances are defined as in the FOREX legislation, by FA93/SCH17/PARA3, see CG44020. The main categories of exempt circumstances are long term and mutual insurance business.

The effect of TCGA92/S117A and TCGA92/S117B is to keep within the scope of chargeable gains debts held by companies in circumstances where the FOREX legislation does not apply. However, the amount of the chargeable gain (or allowable loss) arising in the course of long term or mutual insurance business is then amended, by Regulations. These limit the amount charged, or allowed, under TCGA92 to the amount of any exchange gain or loss on the debt in these cases.

The following no gain/no loss provisions will not apply in relation to disposals of assets within TCGA92/S117A or TCGA92/S117B:-

TCGA92/S139

TCGA92/S140A

TCGA92/S171

TCGA92/S172

ICTA88/S486 (8)

This prevents any capital gains charge, or allowance, from being lost if a loan relationship held in circumstances where TCGA92/117A or TCGA92/S117B apply is transferred to another company to which these provisions do not apply.

Further regulations permit a company holding assets falling within Sections 117A and 117B to make an election in respect of all such assets. The effect of the election is that Sections 117A and 117B do not apply to them with the consequence that they become qualifying corporate bonds. The provisions of Chapter II Part IV FA1996 (loan relationships) then apply to all gains and losses on the assets including exchange differences.

Detailed advice on the operation of TCGA92/S117A and TCGA92/S117B, and the regulations as they affect assets held for the purposes of long term insurance business is contained in the Life Assurance Manual which is issued only to Inspectors in City D, City E, City F and Edinburgh Large Business Offices.

Any inspectors dealing with insurance companies carrying on general (non-life) insurance business on a mutual basis can obtain guidance on the operation of Sections 117A and 117B from Revenue Policy Business Tax (Insurance Group).

FA2002 repealed sections 117A and 117B for accounting periods beginning on or after 1 October 2002.