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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Qualifying corporate bonds: FA2002: loan relationships

This guidance describes the capital gains aspects of the regime for Loan Relationships for companies for accounting periods beginning on or after 1 October 2002 (and in some cases for earlier periods - see CG54120). For periods beginning before 1 October 2002 see CG54000+ for loan relationships, and CG44000 for foreign exchange (FOREX) and financial instruments.

Broadly speaking, a company has a loan relationship wherever it is a party (either as a creditor, or a debtor) to a debt which

  • arose from a transaction for the lending of money, and
  • is a `money debt’, defined as a debt which falls to be settled either by the payment of money, or by a debt which is itself a money debt.

For these purposes, `money’ includes foreign currency. Where an instrument is issued to represent security for, or the rights of a creditor over, a money debt, that debt may be treated as a debt arising from a transaction for the lending of money.

Further detail on the meaning of loan relationship is given at CFM5055+.

Where profits or losses from loan relationships are subject to income treatment, they are specifically exempted from the capital gains charge by treating them as qualifying corporate bonds (QCBs). The previous rules for deciding whether a debt held by a company is a QCB, at CG53700+, ceased to apply from 31 March 1996. From 1 April 1996, for the purposes of Corporation Tax, only debts which are loan relationships can be QCBs, as a result of TCGA92/S117 (A1). However, some categories of loan relationship are not treated as QCBs, see CG54120+.