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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: related transactions

Related transactions

The legislation is concerned with taxing the profits, or relieving the losses, both from loan relationships and related transactions in them.

A related transaction, defined in CTA09/S304, is any acquisition or disposal of any of the rights or liabilities of a loan relationship. This definition is needed because profits or losses on a disposal don’t derive directly from the loan relationship itself, but result from the related transactions of sale or purchase.

Acquisition does not include setting up the loan relationship

A company will acquire the rights under a loan relationship if, say, it buys a security on the market. Entering into a loan relationship, for example making a loan agreement, does not count as a related transaction. The lender has not acquired the rights under that loan relationship, but rather has brought the loan relationship into existence. In order to acquire rights, the loan relationship must exist already. Where loan relationships provisions refer to credits and debits from related transactions, this does not include the original setting up of the loan relationship.

Disposal

A disposal includes part-disposals.

Rights and liabilities

Rights include the right to receive interest or discount and the right to repayment.

Liabilities may include having to pay interest, or to make repayments.

CTA09/S305 shows that ‘rights and liabilities’ under a loan relationship extends to all the rights and liabilities arising as a result of the agreement or arrangement under which the relationship exists, or from the security issued in relation to a money debt. Thus all contractual rights and liabilities are included, and non-contractual rights and liabilities that are part of an arrangement.

CTA09/S304(2) makes it clear that disposals and acquisitions include cases where rights are

  • transferred, for example on sale, or through novation
  • extinguished, for example on repayment or release.

See CFM31130.

Deferred consideration

Where a loan relationship is sold for deferred consideration, the amount reflected in the accounts may depend on whether the consideration is ascertainable or unascertainable when the disposal takes place. The amount brought into account under the loan relationships rules is the amount shown in the accounts. Any subsequent adjustments shown in the accounts will give rise to taxable credits or allowable debits, even though the company is no longer party to the loan relationship. See CFM33280 for more on amounts recognised after disposal.

See CFM41100 for guidance on whether deferred consideration on the disposal of an asset other than a loan relationship gives rise to a money debt.