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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
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Loan relationships: money debts arising from the issue of securities

Issue of securities

Not all money debts arise from the lending of money (CFM31040). But a money debt that is not a loan relationship can be or can turn into a loan relationship as a result of the issue of a debt instrument, such as a company security. CTA09/S303(3) states that any debt instrument issued to represent security for a money debt is taken to be a debt arising from a transaction for the lending of money.

Example 1

Jevsil Ltd buys development land from Kinlog plc. The purchase price is £700,000. Jevsil makes a cash payment of £200,000 and, by agreement, leaves £500,000 unpaid.

The outstanding £500,000 is a money debt but, as there has been no lending of money, it is not a loan relationship.

Example 2

Jevsil Ltd buys development land from Kinlog plc. The purchase price is £700,000. Jevsil satisfies this by

  • a cash payment of £200,000, and
  • issuing 5,000 £100 loan notes to Kinlog plc.

There is still no ‘transaction for the lending of money’, so the money debt is not a loan relationship within the meaning of S302(1). However, Jevsil has issued an instrument (the loan note) as evidence of the debt. S303(3) brings the debt within the loan relationships definition.

CFM31060 has more on money debts arising from the issue of securities.