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HMRC internal manual

Corporate Finance Manual

Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: deemed releases on or after 14 October 2009: overview

Debt buybacks on or after 14 October 2009

CTA09/S361 was amended with effect from 14 October 2009. In the financial conditions then applying, many groups had issued debt that was trading at a discount to the amount borrowed and were seeking to buy it back from the market. By setting up a new company to acquire the debt, groups were able to satisfy the conditions in CTA09/S361(2) and thus qualify from the exemption from the deemed release imposed by CTA09/S358 (CFM35440). The acquired debt was then released by the new, connected creditor and under the connected company rules (CFM35320) no credit arose on the debtor. The group had effectively escaped a tax charge on the release of its debt.

Changes to CTA09/S361 were announced in a Written Ministerial Statement made on 14 October 2009, with the intention of ensuring that only debt buy backs undertaken as part of genuine corporate rescues would benefit from the exemption, and furthermore that if the acquired debt was released intra-group, there would be a tax charge on the amount of the discount at which the debt was purchased.

CFM35520 to CFM35570 explain the operation of sections 358 and 361 where the acquisition of the debt takes place on or after 14 October 2009.

A further Written Ministerial Statement was made on 9 November 2009 announcing that changes would also be made to the CTA09/S322 (CFM33205) to prevent the tax charge on an intra-group release being avoided by the connected creditor and debtor entering into an intra-group debt-equity swap. This change has effect for releases on or after 9 November 2009.