Loan relationships: computational rules: credits and debits not brought into account: imported losses: loss buying
CTA09/327(4) ensures that the loss is disallowed even if the loan relationship is transferred to another company.
Pirt SA, a non-UK resident company, buys loan stock in an unconnected company on 1 June (Year 1) for £100,000, receiving interest at 5%. By the end of Year 2, the loan stock is worth only £30,000 because the issuing company is in financial difficulties and may not be able to repay the loan, though it does still manage to pay the interest.
At the beginning of Year 3, Pirt SA migrates to the UK and sells the loan relationship to a fellow UK group member, Jik Ltd, for £100,000. At the end of Year 4, Jik Ltd sells the stock to an unconnected person for £10,000.
|Year 1||Interest accrued||£5,000|
|Year 2||Interest accrued||£5,000|
|Loss on sale to Jik Ltd|
The companies are members of the same group, therefore CTA09/SS344-348 will apply to prevent any loss or profit on transfer (see CFM34000+ for more on intra-group transfers).
|Year 3||Interest accrued||£5,000|
|Year 4||Interest accrued||£5,000|
|Loss on sale||(£90,000)|
£70,000 (£100,000 less £30,000) of the loss refers to the pre-migration period.