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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Loan relationships: special types of security: deeply discounted securities and close companies: postponement of debits: partnerships

Postponement of debits: partnerships

Partners Mrs A, B Ltd and C NV have interests in the ABC partnership. The profit sharing arrangements are:

Mrs A 12%

B Ltd 39%

C NV 49%

ABC partnership owns 100% of the share capital of D Ltd.

ABC partnership lends £100k to D Ltd on deep discounted terms. S409(1)(a) applies.

Participation

D Ltd is a close company as it is controlled by five or fewer participators. The participators are Mrs A, B Ltd and C NV. S409(1)(b) applies. The partnership is not a collective investment scheme so there is no exclusion.

Is the full amount of the discount brought into account under the loan relationships rules?

Mrs A is an individual and will not be bringing into account the discount under CTA09.

B Ltd is a UK corporate and will be bringing into account the discount under CTA09.

C NV is not a UK corporate and will not be bringing into account the discount under CTA09, and is located in a non-qualifying territory (CFM37320).

D Ltd will treat the loan of £100,000 as being three discounted loans of:

£12,000 from Mrs A

£39,000 from B Ltd

£49,000 from C Inc.

If discount of £10,000 is accrued during the accounting period on the loan from the partnership then D Ltd will treat discount of £1,200 as being appropriate to Mrs A, and discount of £4,900 as being appropriate to the loan from C NV. S408 will therefore restrict the discount debit by £6,100 until that discount is actually paid to Mrs A and C NV on redemption.

Multi-investor partnerships: practical approach

Where discount is payable to large multi-investor partnerships, a debtor company may adopt the same approach as applies for the purposes of the late interest rule. See CFM35980 for guidance.