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HMRC internal manual

Employment Income Manual

Para 6 to 8: loan charge relevant step: meaning of outstanding for loans in non-sterling currencies

Schedule 11 F(No 2)A 2017

Specific provisions apply where a loan has been made in a currency other than sterling.  Where it is reasonable to suppose that one of the main reasons for making the loan in a particular currency was that it was expected that to depreciate against sterling, please see EIM47065 et seq. The provisions for any other non-sterling currency loans are detailed below.

For all non-sterling loans however, the provisions of Paras 1 to 5 apply to determine whether an amount of a loan remains outstanding and therefore whether the loan charge applies. Paras 6 to 8 provide specific rules for currency conversion for loans in non-sterling currencies which are not expected to depreciate significantly.

If a loan has been made in a currency other than sterling, the loan currency is taken to be the currency in which the initial principal amount of the loan is denominated. It does not matter whether the amounts were subsequently paid in that currency.  Where a conversion from an amount in the loan currency into an amount in sterling needs to be done, an appropriate spot rate of exchange can be used.

The amount of the loan which is outstanding at the time P is treated as taking the loan charge relevant step is to be calculated in sterling. Para 7(3) provides for a two-step calculation.

Step 1 – calculate in the loan currency the amount which is outstanding at that time, using the provisions in Paras 3 and 4.

Step 2 – take the value in sterling at that time of that amount.

Where repayments in money are made in a currency which is not the loan currency, the repayment amount is converted into an amount equal to its value in the loan currency on the date it is made.