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HMRC internal manual

Corporate Finance Manual

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Loan relationships: group continuity: overview

Overview

There are special rules in CTA09/PT5/CH4 (CTA09/S335 to S347) where a company transfers a loan relationship to another company in the same group. The rule is similar to the CG treatment under TCGA92/S171 (see CG45300+) where assets may be transferred between group companies at no gain/no loss.

‘Group’ here takes its meaning from TCGA92/S170 (CG45100+), but excludes non-UK companies, by virtue of CTA09/S334(2), which applies the rules only to transactions between group members that are within the charge to corporation tax in respect of that transaction.

Specific rules apply to transfers of business by companies carrying on life insurance business - see LAM Chapter 15.

Effect of the group continuity rules

CTA09/S336 applies to a transaction, or a series of transactions as a result of which one company directly or indirectly replaces another as a party to a loan relationship, and includes the case where a company becomes party to ‘equivalent rights and obligations’.

Where this happens, any credits or debits arising from the transfer (such as loss on sale) are ignored, though other credits and debits (such as interest and discount) are treated normally, and are ascribed to the transferor and transferee according to their periods of ownership.

See CFM34030 for more on the meaning of ‘one company replacing another’, and CFM34040 for more on the meaning of ‘equivalent rights and obligations’.

‘Transaction’ for the purposes of S336 means a ‘related transaction’. This is any disposal or acquisition of rights or liabilities under a loan relationship (CTA09/S304(1)), and includes the sale, purchase, or transfer of a debt. See CFM31120 for more on related transactions.

Repos and stocklending transactions are not related transactions (CFM45000), but a repo is a deemed loan relationship and a transfer of the rights under a repo between members of a group will be a related transaction, and will therefore be subject to the group continuity rules.

Change to the group continuity rules from 16 March 2005: notional carrying value

For transfers between group companies before 16 March 2005 the rule operated in a different way. It worked essentially by treating the transferee company as standing in the shoes of the transferor. For transfers after that date, the transfer is treated as being for a consideration that gives rise to neither a gain nor loss. Whatever the accounting treatment, no amounts will drop out of account when the loan relationship is transferred. The transferor is deemed to have disposed of the loan relationship for its notional carrying value, and the transferee is treated as having acquired it for the same notional carrying value. See CFM34050.

The group continuity rule was formerly to be found in FA96/SCH9/PARA12. CFM34150 gives examples of the way the rule operated before 16 March 2005.

Cross border transfers of business and mergers

CFM34160 explains the transfer of an asset or liability representing a loan relationship where a UK company merges with a company or companies in other EU member states to form a European Company.