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HMRC internal manual

Corporate Finance Manual

Loan relationships: partnerships: connected company partners: tax consequences

Company partners connected through control: tax consequences

When a company partner controls a partnership, S383(5) treats that partner as connected, for the purposes of CTA09/PT5/CH5, to all the company partners including itself. This means that the partner

  • must use the mandatory accruals or amortised cost basis (CFM35170)
  • cannot have relief for impairment losses (or bad debts, for periods before 1 January 2005 - CFM35300)
  • gets no relief for interest until paid unless corresponding credits are brought in (CFM35800)
  • debits on relevant discounted securities are not brought into account until redemption unless corresponding credits are brought in (CFM37200)

for all its debtor and creditor relationships with the partnership (and so with the other company partners.)


In the example at CFM36060, both B Ltd and C Ltd control the partnership, and each have lent it £50,000.

The partnership is struggling, so each partner writes off £25,000 of the loan.

Both B Ltd and C Ltd will treat the loan relationship as a

  • creditor relationship in their own accounts
  • debtor relationship from the point of view of the partnership.

Each loan relationship is a connected party loan relationship for the purpose of CTA09/PT5/CH5.

So each partner will

  • bring in credits from the creditor relationship on the amortised cost basis
  • assume that the debt will be paid in full, so bring in no debit for impairment
  • compute the gross credits and debits of the partnership also on the amortised cost basis, before taking its share.