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HMRC internal manual

Corporate Finance Manual

Interest restriction: related parties: general rule

TIOPA10/S463

The general rules is that A and B will be related parties on a particular day where any one of three conditions is satisfied:

The consolidation condition

A and B will meet this condition if:

  • Their financial results for a period are required to be comprised in group accounts.
  • Their financial results for the period would be required to be comprised in group accounts, but for the application of an exemption.
  • Their financial results for a period are actually comprised in group accounts.

Group accounts means accounts prepared under s399 of the Companies Act 2006, or any corresponding provision of the law of a territory outside the United Kingdom.

The participation condition

A and B will meet this condition if, within the period of six months beginning or ending with that day, either of the below are met:

  • Either A or B directly or indirectly participates in the management, control or capital of the other.
  • The same person or persons directly or indirectly participates in the management, control or capital of both A and B.

Whether a company participates in the management, control or capital of the other is determined in the same way as for transfer pricing.

Where either A or B is a securitisation company, they are not treated as related parties if this treatment only arises by virtue of the securitisation company being held by a trustee of a settlement with the other party being a settlor of that settlement.

Example

A Ltd has one wholly owned subsidiary (B Ltd) which it disposes of to an unrelated party on 1 April 2017. The participation condition will be met up to this date because A Ltd directly controls B Ltd. A Ltd and B Ltd will continue to be related parties up until 1 October 2017, however, because this is six months from the day the condition was last met.

The 25% investment condition

A and B will meet this condition on any day where either A or B has a 25% investment in the other or a third person has a 25% investment in both A and B.