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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Loan relationships: group continuity: meaning of ‘one company replacing another’

When Chapter 4 applies

CTA09/PT5/CH4 applies when, as a result of a related transaction, one group company replaces another as a party to a loan relationship. So it can only apply when the whole loan relationship is transferred.

This could happen where

  • a loan relationship is transferred between two companies that are members of the same group, or
  • a series of transactions has the effect of a transfer between two companies that are members of the same group.

Both companies must be chargeable to corporation tax in respect of the transaction - so Chapter 4 could not apply if, say, one of the companies was a charity.

As long as the company transferring the debt, and the company ultimately receiving it, have been members of the same group at any time in the course of a series of transactions, there has been a replacement for the purposes of Chapter 4.

JH Ltd and IK Ltd are both members of the same group of companies.

JH Ltd lends a third party, B Ltd, £10,000.

Chapter 4 could apply if, for example, JH Ltd transfers the debt to IK Ltd.

VG Ltd and FP Ltd are both members of the same group of companies.

VG Ltd subscribes £50,000 for a security issued by K plc.

Chapter 4 could apply if, for example VG Ltd sells the security to FP Ltd.

Series of transactions: example

JH Ltd and IK Ltd are both members of the same group of companies.

JH Ltd lends a third party, B Ltd, £10,000.

JH Ltd sells the debt to Bank Ltd.

Bank Ltd sells the debt to IK Ltd.

The series of transactions has the same effect as if there had been a related transaction between JH Ltd and IK Ltd, so Chapter 4 applies.