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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: how do loan relationships fit into the corporation tax rules?

Interaction with other tax rules

CTA09/S464 provides that, subject to any express provision to the contrary, the amounts taxable under CTA09/PT5 are the only amounts to be brought into account for corporation tax purposes. The loan relationships rules, therefore, form an exclusive code on the taxation of corporate finance, and the amount in question cannot be taxed or relieved under other tax rules.

‘In respect of any matter’

CTA09/S464 states that the amounts which are brought into account under the loan relationships rules are the only amounts to be brought into account ‘in respect of any matter’. These words refer to the specific feature of the loan relationship that gives rise to the credit or debit (for example, the release of a debt), not the loan relationship itself.

Interest is only relievable under loan relationships rules

The exclusivity of the loan relationships legislation in relation to interest is further emphasised by ICTA88/S337A(2)(a) provides that interest is only deductible, for corporation tax purposes, in accordance with the loan relationships rules. See CFM33030 and the Savings and Investment Manual (SAIM2000) for more on the meaning of interest.

Distributions

The loan relationships rules do not apply to:

  • distributions (see CTM15000), except where amounts that would otherwise be treated as distributions are taxable as loan relationships (these are certain types of shares CFM45000, alternative finance return CFM44000) and certain amounts payable by building societies and similar institutions CFM43000);
  • amounts taxable or receivable under life assurance policies (see the HMRC Life Assurance Manual).

Loan relationships rules only apply for the purposes of corporation tax

The loan relationships rules apply only to companies within the charge to corporation tax. This includes companies that are members of partnerships. The rules do not apply to individuals. See the Savings and Investment Manual (SAIM) for guidance on the taxation of interest and other forms of savings income in the hands of individuals.

Non-resident companies come within the rules only if they fall within CTA09/S19.