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HMRC internal manual

Capital Gains Manual

Qualifying corporate bonds: loan relationships: transitional amount

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+

Any gain or loss computed under the transitional rules is brought into the Corporation Tax assessment of the company making (or treated as making) the disposal, in the accounting period in which the relevant event occurs. Where the asset has been transferred on a no gain/no loss transfer prior to the relevant event, see CG54060, the chargeable company will be the transferee company, not the company which held the asset at 31 March 1996.

Where the amount computed under the transitional rules would be an allowable loss, the chargeable company may - subject to the restriction - elect for the amount to be treated, instead, as a debit within the FA1996 income regime.

Any election under FA96/SCH15/PARA9 must be made not later than 2 years after the relevant event on which the loss arises.

Further guidance on the use of debits within the income regime is provided in the detailed advice on loan relationships in the CT manual.

No election can be made in respect of any transitional loss arising on a debt which, at 1 April 1996,

  • fell, in accordance with TCGA92/S127 or TCGA92/S214 (9), to be treated as the same asset as an earlier asset which would not be a loan relationship; or
  • would have so fallen, but for TCGA92/S116 (5).TCGA92/S127 covers reorganisations which are not treated as involving any disposal of the original asset. Instead, the new assets are treated as the same as the earlier asset, see CG51700+. TCGA92/S116 deals with reorganisations involving QCBs, see CG53820+. TCGA92/214 (9) applies a no disposal/same asset fiction to certain assets exchanged by insurance companies.

This rule prevents losses on earlier assets, which would not have been treated as loan relationships, from being taken into the income regime as a result of the election.