Loan relationships: non-trading profits and deficits
What is a non-trading loan relationship?
A company will have a non-trading loan relationship if it is not a party to that loan relationship for the purposes of its trade. For example, if
- it has no trade, such as an investment company, or
- it has a trade, but it holds a loan relationship for investment or other non-trade purposes.
Note that a property or overseas property business is not treated as a trade for this purpose, nor is a mine or railway etc under CTA09/S39.
Non-trading credits and debits
Any credits and debits that are not brought into account as trading income and expenses are termed ‘non-trading’ profits and deficits (CTA09/S301(2)). The company arrives at the amount to be brought into account, by aggregating the non-trading credits and debits from loan relationships (including deemed loan relationships under CTA09/PT6).
Where the result is a surplus of non-trading credits, or where there are only non-trading credits, the amount is chargeable as income under CTA09/S299.
Where the result is a surplus of non-trading debits, or where the company has only non-trading debits the amount is treated as a non-trading loss and dealt with in accordance with CTA09/PT5/CH16.
Relieving non-trading deficits
The basic rule is that non-trading deficits are carried forwards and set against non-trading profits in succeeding accounting periods (CTA09/S457).
But this does not apply to so much of the deficit as is
- surrendered as group relief under ICTA88/S403, or
subject to a claim for the deficit to be set off against
- any profits of the deficit period (under CTA09/S459(1)(a) and S461),
- or non-trading credits arising in the previous 12 months before the deficit period (CTA09/S459(1)(b) and S462).