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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: returns from partnerships: introduction

Background: the avoidance schemes

This guidance applies to companies that have interests in partnerships up to 21 April 2009

A number of avoidance schemes which sought to avoid corporation tax on interest that involved the use of shares acting as debt were identified and legislation was enacted in F(No2)A 2005 which was intended to deal with these schemes. The resulting legislation is at CTA09/PT6/CH7 (see CFM45010 for further background to that legislation).

As this legislation blocked a number of the ‘shares as debt’ type schemes a number of new schemes were devised which attempt a similar type of avoidance but use interests in partnerships in place of shares in companies.

The intention is for a company to provide loan finance in the form of an interest in a partnership and the financing, or ‘interest-like’, return is either within the discounted value of that interest in the partnership or in the form of an enhanced entitlement to the partnership capital. Consequently, it is intended that this interest-like income is not taxed as interest within the loan relationships regime.

CTA09/PT6/CH8 was enacted in response to these schemes.