INTM414530 - Compensating adjustments: Compensating adjustments for guarantor companies
TIOPA10/S191 has been amended to reflect the repeal of TIOPA10/S153 and introduction of TIOPA10/S153A.
TIOPA10/S191 still requires that TIOPA10/S147 has applied to reduce a borrower’s deductions for interest or other amounts, and that the loan was the subject of a guarantee. However, whilst under the previous rules this reduction had to be due to TIOPA10/S153, which required certain guarantees not to be taken into account, TIOPA10/S192 requires that the reduction was due to the provision for the guarantee being regarded as non-arm’s length in accordance with TIOPA10/S153A.
To the extent that the conditions of TIOPA10/S191 are met, a claim under TIOPA10/S192 can be made by a UK resident company in order to be treated, for all purposes of the Taxes Acts, as if it (and not the borrower):
- had borrowed the amount
- owed the liabilities under it, and
- had paid any interest or other amounts paid under it by the borrower.
These amounts which the guarantor is treated as having borrowed may themselves be subject to TIOPA10/S147 if the provision of borrowing to the guarantor also would not have been arm’s length.
Interaction with UK-to-UK exemption
If the provision of a guarantee is a qualifying provision within the UK-to-UK exemption, then TIOPA10/S147 and TIOPA10/S153A will not apply to require profits and losses to be calculated as if the arm’s length provision had been made or imposed (ie, no guarantee of amounts that would not have been lent but for a guarantee). In such cases, the guarantee can be taken into account when determining the arm’s length provision between lender and borrower (even if the UK-to-UK exemption only applies between the guarantor and the borrower).
Accordingly, as the guarantee has been taken into account, any reduction in the amounts to be deducted by the borrower is not due to TIOPA10/S153A regarding the guarantee as non-arm’s length.
However, whilst no claim would be available under TIOPA10/S192 in these circumstances, this does not mean that no claim is available under TIOPA10/S174 in respect of such a reduction in the amounts to be deducted by the borrower (whether this due to the amount of the loan being excessive notwithstanding the guarantee being taken into account or due to the interest rate being excessive).
Further information about the interaction of the UK-to-UK exemption and guarantees rules can be found at INTM414320 and INTM414410.
Simplification of language In Part 4 TIOPA
Amendments have been made to simplify the language used when referring to financial transactions throughout TIOPA10/Part 4. References to ‘issuing security’ have been replaced with ‘borrowing’ to avoid confusion as to the meaning of ‘security’ in this context. These changes have no practical impact on the application of the legislation.
Commencement provisions
These rule changes are subject to specific commencement provisions.
For borrowing that occurs on or after 1 January 2026, these rules have effect for chargeable periods of a person that end on or after 1 January 2026.
For borrowing that occurs before 1 January 2026, these rules have effect:
- in relation to chargeable periods commencing on or after 1 January 2028; or
- where a person has elected that the amendments should apply to it for a chargeable period, in relation to a chargeable period ending on or after 1 January 2026.