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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Authorised investment funds (AIFs): taxation of funds: loan relationships rules

Chapter 2 and Schedule 10, Finance Act 1996

The rules in FA96/SCH10 apply to an authorised investment fund (AIF) with some variations as set out below.

No carry back of loan relationship deficits in accounting periods beginning on or after 1 April 2006

For accounting periods beginning on or after 1 April 2006 the carrying back of a loan relationship deficit is not allowable (SI2006/964 Regulation 14).

Interest distributions in accounting periods beginning on or after 1 April 2006

For details of the treatment of interest distributions as loan relationship debits in accounting periods beginning on or after 1 April 2006 see also CTM48270.

Loan relationship treatment does not apply to capital profits and losses

Any profits or losses on loan relationships which are treated, for accounting purposes, as capital by the Statement of Recommended Practice specific to AIFs must not be brought into account as loan relationship credits or debits. This follows from requirements at SI2006/964 Regulation 10 or, for accounting periods beginning prior to 1 April 2006 but after 30 September 2002, from FA96/SCH10/PARA2A and 2B.

The reason for this is that the capital gains or losses of an authorised investment fund are exempted from corporation tax (CTM48215).

Further guidance, including guidance on the position of company participants, can be found at CFM14001 onwards.

Guidance on the position of company participants can also be found within this manual at CTM48500 onwards.

Accounting periods beginning on or before 30 September 2002

The treatment of profits, gains and losses arising from the creditor relationships was different. Should any queries arise relating to loan relationships for accounting periods beginning on or before 30 September 2002 then advice may be sought from CTIAA (Collective investment Schemes).