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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: connected companies and impairment: basic rules: related transactions

Related transactions

Disposal of a loan relationship or any rights under a loan relationship is a related transaction (CFM31120), and any profits or losses on disposal are brought in as credits or debits under CTA09/S293.

Where the companies are connected, and the creditor company sells the loan relationship to an unconnected third party, the provisions in CTA09/S352 adjust any loss (or profit) on disposal. This prevents a creditor from getting an impairment loss it was previously denied because of the connection, by instead bringing in the loss on disposal.

‘Related transaction’ includes a release of a debt, and S352 therefore also denies a debit where a creditor unconditionally releases a debt owed by a connected debtor.

This rule was extended in FA 2004 so that it applies in the case of any related transaction on or after 2 December 2004. Previously it applied only if the company ceased to be party to the loan relationship.

Adjusting the loss on disposal

CTA09/S352 works by comparing the

  • debits and credits that would have been brought into account under the loan relationships rules if there had been no disposal, and
  • the actual debits and credits brought into account under the loan relationships rules.

For debits, the amount to be brought in is the smaller of the assumed or actual debit.

For credits, the amount to be brought in is the larger of the assumed or actual credit.

See the examples at CFM35350.

Disposal to another group company

If the creditor company sells the loan to another group company, the provisions in CTA09/PT5/CH4 that apply to group transfers have a similar effect - see CFM34000.