EIM47090 - Paras 17 to 18: loan charge relevant step: quasi-loans made in a depreciating currency

Schedule 11 F(No 2)A 2017

Where a quasi-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 quasi-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 quasi-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 quasi-loan is made and ends with the time by which the whole of the quasi-loan is to be repaid according to its terms.

The first step is to calculate the value of the initial debt amount. This is the value in sterling on the day on which the right to repayment of the quasi-loan was acquired. If rights to any further debts which are not capitalised interest have also been acquired under the quasi-loan, the value in sterling of these sums on the date they were acquired should be added to the initial debt amount.

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

Where the repayment is in sterling, this can be set off against the initial debt 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.