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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: credits and debits not brought into account: imported losses

Imported losses

CTA09/S327 is an anti-avoidance provision which prevents companies obtaining tax relief for losses that have nothing to do with the UK. For instance, where a company migrates to the UK, it prevents it obtaining tax relief for losses arising on loan relationships held by it before it migrated to the UK to the extent they relate to earlier periods. Similarly, where a company ‘pregnant’ with such losses is purchased by another company (loss-buying), these losses will not be available for group relief.

When does it apply?

CTA09/S327 applies when, in an accounting period

  • a company is using an amortised cost basis, and
  • a loss arises in respect of a loan relationship (the debits to be brought into account exceed the credits), and
  • the loss is ‘referable in whole or in part to a time when the relationship was not subject to UK taxation’.

Accounting basis

S327 does not apply when a company is using a fair value basis of accounting. The opening market value, when the loan relationship first becomes subject to UK tax, should be the fair value, which excludes any previous losses.

Losses only

S327 does not apply where there is a profit in an accounting period in respect of a loan relationship, even where that profit would have been bigger but for an ‘imported loss’. It applies only to disallow part or all of a loss.

S327 applies both to debtor and creditor relationships, although it is unlikely to apply to borrowers in practice.