Changes to corporation taxation of loans and interest

Changes to corporation taxation of loans and interest

Tue 01 Apr 2014

Following consultation on the corporate debt rules as a whole, legislation is to be introduced in Finance Bill 2014 which provides tax relief in certain circumstances where a company leaves a group whilst holding loan relationships or derivatives previously transferred to it by another group company.

Company leaving a group on or after 1 April 2014

Finance Bill 2014 is to amend the tax treatment of debt where a company holding a loan relationship (whether as a debtor or creditor) or a derivative leaves a group, where that debt/derivative was previously acquired from another group company within the preceding six years. In this situation, a de-grouping tax charge must be calculated based on the difference between:

(i) the notional carrying value of the debt/derivative in the company’s accounts, and

(ii) the fair value of the debt/derivative at the date the company leaves the group.

In broad terms, the relevant legislation provides that if the above calculation gives rise to a taxable credit (i.e. gain). However no relief is currently given for a debit (i.e. loss).

Once amended by Finance Bill 2014, tax relief will be given to the company in the event that a debit (loss) arises as a result of the de-grouping.

Partnership changes deferred for further consultation until at least 2015

In the Autumn Statement 2013, a change to the taxation of companies that are members of a partnership was proposed. Draft legislation was also published. This change is now being deferred to Finance Bill 2015.

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