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HMRC internal manual

Employment Income Manual

Paras 9 to 10: loan charge relevant step: loans made in a depreciating currency

Schedule 11 F(No 2)A 2017

Where a loan is made in a currency which is expected to depreciate in value against sterling, the loan charge calculations may be affected by rapidly reducing exchange rates. The loan charge legislation includes specific provisions to bring such arrangements in line with loans and repayments made in sterling or non-depreciating currencies.

In order to use these provisions, it must be reasonable to suppose that the main reason or one of the main reasons for making a loan in a particular currency is that the currency is expected to depreciate against sterling during the period of the loan. That period starts at the time the loan is made and ends with the time by which the whole of the loan is to be repaid according to the terms of the loan.

The first step is to calculate the value of the relevant principal amount. This is the value in sterling of the initial amount lent, calculated at an applicable spot rate for the day on which the loan was made. In addition to this if any further sums which are not capitalised interest have become principal under the loan, the value in sterling of these sums on the date they became principal should be added to the relevant principal amount.

The next stage is to calculate the repayment amounts. Repayment can be made in sterling or other currencies against the sterling value of the relevant principal amount.

Where the repayment is in sterling, this can be set off against the relevant principal amount.

Where the repayment is made in a currency other than sterling, the repayment amount is the sterling value equivalent of the repayment on the date the repayment was made.