Skip to content
Solved

CFM35435 | Loan relationships: connected companies and impairment: debtors: History to the deemed release rules

From HM Revenue & Customs · Corporate Finance Manual

History to the deemed release rules

The rules on impaired debt have changed several times since they were introduced in 2005.

Transactions before 18 November 2015

When a group buys back its own debt instruments for less than the amount that it received when it issued the instruments, it makes a profit equal to the difference. CTA09/S361 ensures that this profit is charged to Corporation Tax.

Under the original rules there was an exclusion from CTA09/S361 within CTA09/S361(2). However, following the financial crash in 2008, this was exploited to escape the tax charge. This led to changes from 14 October 2009.

Specifically, S361(2) was repealed, and replaced by the following exceptions:

On 27 February 2012 changes were made to counter new avoidance arrangements exploiting the deemed release provisions in S362. This legislation has three elements.

First, S362 was amended so that the deemed release under that section is the difference in the pre-connection carrying value in the accounts of the creditor and debtor companies. This is explained in CFM35480.

Second, it inserted a targeted anti-avoidance rule (CTA09/S363A) to address arrangements seeking to circumvent either S361 or S362. See CFM35590 for more on this.

Third, it contained retrospective provision for arrangements entered into between 1 December 2011 and 27 February 2012. Contact the Financial Products Team if you think this rule is applicable.

18 November 2015

In December 2013 HMRC launched a wide-ranging review of the loan relationship rules. As a result of this consultation, a new corporate rescue exception (CTA09/S322(5B)) was introduced for actual debt releases. Following further engagement, the exceptions from the debt release rules were modified to follow a similar approach.

The amendments to the deemed release rules comprised:

  • The repeal of the ‘old’ corporate rescue exception (S361A) and the ‘old’ debt-for-debt exception (S361B).

  • The introduction of the current corporate rescue exceptions at S361D and S362A - see CFM35570 and CFM35580.

These changes apply to transactions taking place from 18 November 2015.