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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: tax avoidance: overview of other anti-avoidance rules

Other anti-avoidance rules

The ‘unallowable purposes’ rule at CTA09/S441 (CFM38100) and the rules on non-arm’s length transactions (CFM38400) are the key anti-avoidance legislation within the loan relationships regime.

However, there are other anti-avoidance rules that may counteract specific abuses. These are the rules on

  • ‘tax relief schemes’, which involve artificial payments of interest where the ‘sole or main benefit’ is to obtain tax relief - rules which pre-date the loan relationships legislation in FA96 (CFM39020);
  • Connected parties deriving benefit from creditor relationships (CFM39035);
  • schemes that obtain a tax advantage from ‘resetting’ interest rates - so-called ‘reset bonds’ and ‘mirror bonds’ (CFM39040);
  • disposals for consideration not fully recognised by accounting practice (CFM39080).

In addition, see the guidance on the following provisions which also address avoidance concerns

  • ‘Hybrid securities’ issued between connected companies (CFM37730).
  • The ‘disguised interest’ rules in CTA09/PT6/CH2A, (CFM42000) which are a successor to the ‘shares as debt’ rules formerly in CT09/PT6/CH7 (CFM45000). Note that these rules take precedence over the arbitrage’ rules involving ‘hybrid securities F(No.2)A05/SCH3).
  • The ‘transfers of income streams’ rules in FA09/SCH25 (CFM77000).
  • ‘Late-paid’ interest (CFM35800).
  • Company migration (CFM33250).
  • ‘Structured finance arrangements’ or ‘factoring’ legislation in ICTA88/S774A-G (CFM73000).
  • Amounts not fully recognised for accounting purposes (CFM39200).
  • Group mismatch schemes (CFM77500).