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HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: Full Exemption - Qualifying Resources: What are Qualifying Resources?: Profits from lending to the territory: Capitalised Interest

There may be cases where interest on a qualifying loan relationship (“QLR” -INTM217000) is capitalised. Any claim that profits in respect of that capitalised interest falls within TIOPA10/Part 9A/S371IB(6)(a) on the basis that

  • the interest represents profits of the CFC’s business arising from a loan to a qualifying group company, and 
  • the interest is lent to the qualifying group company (because it is capitalised) for business purposes and is used solely for the purposes of that company’s business

should be considered critically. Normally an expense (including interest) which has accrued but not been paid is not considered to be a loan - a transaction for the lending of money - under the loan relationship rules. But if a loan agreement allows the interest to be added to the original loan and then repaid in priority to capital repayments of the loan, it is possible that the interest will be qualifying resources.