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HMRC internal manual

Company Taxation Manual

Corporation Tax: company reconstructions: relevant liabilities restriction - details

CTA10/S946 and S947

These sections give details of the components of the relevant liabilities restriction imposed by CTA10/S945 and outlined at CTM06250. There are examples showing the operation of the relevant liabilities restriction at CTM06280.

Relevant liabilities

CTA10/S945 (2) and S946 have a definition of the liabilities counted for the restriction. They are:

  • liabilities which were outstanding and vested in the predecessor immediately before it ceased to carry on the trade,

but excluding

  • those liabilities which were transferred to the successor, and
  • liabilities representing share capital, a share premium account, reserves or ‘relevant loan stock’.

The value of the relevant liabilities is the amount of the liabilities immediately before the predecessor ceased to carry on the trade. In practice contingent liabilities should be included only to the extent they are included in the calculation of the tax losses.


Relevant loan stock

Relevant loan stock is defined in CTA10/S946 (8) and (9). It is:

  • any loan stock or similar security (whether secured or unsecured),

but excluding debts, which

  • at the time they were incurred arose from advances made by a person carrying on the trade of lending money.

Because of the resemblance of CTA10/S946 (8) to TCGA92/S132 (3)(b), the meaning of ‘debt on security’ for the purpose of CTA10/S940A follows that of the CGT legislation. The CGT meaning of ‘debt on security’ is discussed at CG53420+.


Relevant assets

CTA10/S945 (3) defines ‘relevant assets’. These are assets, which were vested in the predecessor immediately before it ceased to carry on the trade, which were not transferred to the successor.

These are deducted in the relevant liabilities computation at market value. The definition of ‘market value’ is at CTA10/S947 (3). It is in the same general terms as for CGT purposes. See CG16330+ on principles of valuation.

CTA10/S947 (4) deals with ‘relevant loan stock’:

  • secured on an asset, and
  • which is not transferred to the successor.

The effect of CTA10/S947 (4) is that the market value of the asset is reduced by the amount of the liability represented by the relevant loan stock.



CTA10/S945(3) defines ‘consideration’. This is the amount given to the predecessor by the successor for the change in ownership of the trade or part-trade. Consideration does not however include the mere assumption by the successor of any liabilities of the predecessor.


Part-settlement of debts

CTA10/S946 (3) addresses the situation where

  • a liability is transferred to the successor, but
  • the creditor concerned has agreed to accept less than the full amount due in settlement of the whole debt.

CTA10/S946 (4) treats the shortfall as a liability for the purposes of the restriction.