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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: exemptions from CTA09/S361

Debt buybacks on or after 14 October 2009: exemptions from releases of relevant rights

CFM35450 to CFM35470 explain the application of CTA09/S361 up to 14 October 2009. For acquisitions of impaired debt by a connected creditor on or after that date, section 361 is amended to replace the previous exemption from a deemed release under section 358 (where the creditor and debtor are not connected in the period of 3 years beginning 4 years before the date of the acquisition) with three new exemptions.

These new exceptions are:

  • Section 361A - the corporate rescue exception (CFM35540)
  • Section 361B - the debt-for-debt exception (CFM35550)
  • Section 361C - the equity-for-debt exception (CFM35560).

If any of these exceptions apply, there will be no credit on the debtor company in respect of a ‘deemed release’ under section 358.

If, however, the connected creditor company subsequently releases the debtor from all or part of the debt, and either the corporate rescue exception or the debt-for-debt exception (but not the equity-for-debt exception) have applied, a credit will then be imposed on the debtor company on the ‘release of relevant rights’ - the amount of the discount at which the creditor acquired the debt, less any amounts taxed on the creditor in respect of the discount (CFM35520).

Interaction of the exceptions

If a company meets the equity-for-debt exception as well as one of the other exceptions, there will be no release of relevant rights under section 358(4).