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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: tax avoidance: transactions not at arm's length: exceptions


There are a number of exceptions to the rule in CTA09/S444.

Initial setting up of a loan relationship

The various categories of related transaction in CTA09/S304(1) do not include the initial setting up of a loan relationship. So, even if a company enters into a loan relationship on uncommercial terms, such as an interest rate below market value, S444 cannot apply to make an adjustment. Instead you need to consider the transfer pricing rules in TIOPA2010/Part 4(INTM430000).

Acquiring a loan relationship at less than market value

CTA09/S444(4) provides that the S444(1) adjustment does not apply to debits arising

  • from the purchase of a loan relationship
  • at less than market value.

Although this rule is primarily aimed at cases where the vendor is not within the charge to corporation tax, it does apply in other cases too.

So, when a company buys a debt at undervalue (not at arm’s length), there is no adjustment in its accounts; it brings in the lower value and is taxed on the full amount of any resulting profit. S444(1) does apply to the vendor, however - where it sells a debt at undervalue (not at arm’s length) it is taxed as if it had sold the loan relationship at the market value.

See the example at CFM38430.

Transactions within the scope of TIOPA2010/Part 4

CTA09/S445 disapplies S444 where a related transaction falls to be adjusted for tax purposes under TIOPA2010/Part 4, whether or not there is an actual adjustment under that provision. So, CTA09/S444 will not apply where the conditions in paragraph 1 of TIOPA2010/Part 4 are met but no adjustment is required because the actual debit or credit arising in respect of the related transaction is the same as would arise on an arm’s length basis.


CTA09/S444 does not apply to

  • related transactions between companies that are members of the same group, and chargeable to corporation tax, or
  • transactions that are part of a series of transactions, such as back to back loans, that have the same effect as transactions between group members.

where the continuity of treatment rules for groups, in CTA09/PT5/CH4 (see CFM34000), apply or would apply but for the fact that the transferor already uses fair value accounting

Forex gains and losses

FOREX gains or losses are not adjusted - S444(6). There are separate provisions for non-arm’s length transaction involving exchange gains or losses - see CFM38500.