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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: trade debts: debt releases

Trade debt releases come within loan relationships

FA09 expanded the provisions for relevant non-lending relationships so that, where a debt arising from a trade or a UK or overseas property business is released, the ‘profit’ brought into account by a debtor company is taxed under the loan relationships rules. The change applies to debt releases occurring on or after 22 April 2009.

It also puts beyond doubt that, where a creditor company releases a trade or property business debt, the resultant debit falls within loan relationships rules. For releases before 22 April 2009, HMRC’s view was that the provision in CTA09/S481(3)(d) relating to impairment losses also applied to release debits.

‘Release’, in this context, means either a formal release which the creditor executes by deed or a legally binding agreement between the debtor and creditor that cancels the debt. It also covers any case in which, either because of the passage of time or for some other reason, a debt is no longer legally enforceable and the debtor accordingly brings in an accounts credit (see BIM40255). The provisions do not, however, apply if a creditor merely neglects to pursue a debt, either by oversight or intention.

CFM41070 gives guidance on the tax consequences of debt releases where the creditor and debtor are connected companies, and CFM41080 deals with the situation where they are not connected.