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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Debt cap: calculating the disallowance of financing expense amounts: related transactions

TIOPA10/S313(3)(c) specifically excludes debits in respect of ‘related transactions’ from being financing expense amounts. ‘Related transaction’ has the meaning that it has for loan relationships purposes (CTA09/S315) - any disposal or acquisition, in whole or part, of rights or liabilities under the relationship.

Example 1

A UK company holds securities issued by an unconnected company. It has not adopted IAS 39 or FRS 26, and carries the securities at historic cost. It sells the securities on the open market, realising a loss in so doing. The resultant loan relationships debit arises from a related transaction, and does not form part of the company’s financing expense amounts.

Example 2

A UK company has issued securities into the market. It accounts for the liability on an amortised cost basis. In its accounting period year ended 31 December 2011, the company becomes resident for tax purposes in a territory outside the UK. Under CTA09/S333, the company is deemed to have disposed of, and immediately reacquired, the debtor loan relationship at its fair value, immediately before the migration. The deemed disposal gives rise to a loan relationships debit. This debit arises from a related transaction (albeit a deemed, rather than an actual, transaction) and consequently is not a financing expense amount.