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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
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Deemed loan relationships: money debts: related transactions for the disposal of interest rights

F(No.2)A 2005 inserted rules on related transactions taking place on or after 16 March 2005.

Avoidance disclosures had indicated that companies were entering into transactions to transfer the rights to interest shortly before payment so that instead of receiving interest they received a sum equal to the value of the interest. Since such sums may not be interest it was argued that they were not within the scope of the rules on money debts.

Where a company has a money debt to which CTA09/S479 applies (that is, money debts on which interest, exchange differences and impairments losses arise), under CTA09/S481(5) any profit from the disposal of its interest rights is bought into charge as a loan relationship credit. CTA09/S481(8) applies the same rule for sales of rights to discount.

The rules apply:

  • in the case of a money debt on which interest is payable, to profits (but not losses) arising to the company from any related transaction in respect of the right to receive interest
  • in the case of a money debt on which discount arises, to profits (but not losses) arising to the company from any related transaction.

‘Related transaction’ takes its meaning from CTA09/S304 as any disposal (in whole or part) of rights or liabilities under the relationship.