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HMRC internal manual

Company Taxation Manual

Corporation Tax: charitable donations relief: formerly charges on income: annuities taken over - payments made before 16 March 2005

A business may become incorporated. On incorporation the company may take over a liability to pay an existing annuity to a former partner, and reflect this in the agreement for the purchase of the business. Or a company may take over a business and under the terms of the purchase agreement become liable to pay an annuity at a later date. In each case ICTA88/S338B (2)(a) (or ICTA88/S338 (5)(b) for payments prior to 25 July 2002) does not deny the company relief for the annuity payments as long as the annuity is of a commercial amount. If the company’s obligation to pay the annuity:

  • arises in respect of a bona fide commercial transaction,


  • there are no other special circumstances,

then ICTA88/S125 does not apply to disallow the payments.

Where a company takes over a business, and:

  • assumes an existing obligation to pay an annuity, or
  • an obligation is created as part of the purchase terms,

the company does not incur the annuity payments wholly and exclusively for the purpose of its trade.

But where a company:

  • takes over a business, and
  • at a later date pays an annuity,

and the agreement under which the company takes over the business does not refer to the company’s liability in the end to pay the annuity, S338B (2)(a), (or S338 (5)(b) for payments made prior to 25 July 2002), does operate to prevent the annuity from being a charge.

However, such payments made on or after 16 March 2005 are not allowable as charges in any event - see CTM09010