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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: money debts: discounts: tax consequences within loan relationships

Tax consequences where a discount is treated as a money debt

Where a company is party to a money debt that meets the conditions in CTA09/S480 it is deemed to have a loan relationship but only in relation to the matters specified in CTA09/S481(5). These matters are:

  • any discount arising to the company from the money debt
  • any impairment (or reversal of impairment) arising to the company in respect of the discount.

CTA09/S482(2) provides that where discount is brought into account for the purposes of CTA09/PT6 the deemed creditor loan relationship must be accounted for, for tax purposes, on an amortised cost basis of accounting. This ensures that the discount is brought into account over the life of the debt rather than deferred until it is realised.


A company sells shares worth £100 for £105. The purchase consideration is agreed at 105 payable by the purchaser in a year’s time.

CTA09/S480 will apply to the difference of £5 between the consideration and value of the asset because:

  • there is a disposal for deferred consideration
  • the consideration is in excess of the value of the property at the time of disposal
  • the excess is in substance a return on a money debt.

The difference of £5 between the value of the shares and the deferred consideration paid is charged as a loan relationship profit. This amount must be brought into account for tax purposes on an amortised cost basis.

Had the property disposed of been a loan relationship then CTA09/S479 would not apply. Instead the full consideration of £105 would be brought into account in determining the profit on disposal of the loan relationship. Similarly, if the company had been a financial trader such that the sale of the shares represented a trade receipt, CTA09/S479 would not apply since the consideration of £105 would already be charged to CT as a trade receipt.