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Interest-bearing debts
The most common example of such debts is a trade debt. Interest and profits (but not losses) from the
disposal of the right to receive interest, exchange gains and losses, and impairment losses on such debts
are taxable under CTA09/S479 as loan relationship credits and debits.
The impairment losses to which Chapter 2 applies are what used to be taxed as bad and doubtful trade
debts under ICTA88/S74(1)(j) for periods before 1 January 2005.
Discounts
Discount received on a money debt is taxable under CTA09/S480 as loan relationship credits. The rule
only applies to the creditor, not to the debtor, and does not apply to amounts brought into account as
trade receipts. Before 16 March 2005, discounts were taxable for Corporation Tax purposes under
Schedule D Case III.
The rules on money debts are explained in more detail at CFM41000.
Holdings in certain types of investment fund and mutual
arrangements
Certain types of investment may not be ‘money debts’, or arise from lending money, or the return they
provide may be described as a ‘dividend’ or a ‘bonus’ rather than as ‘interest’.
Investment funds
Special rules prevent a company avoiding the loan relationships rules where it holds debt securities
through the intermediary of certain types of investment funds - open-ended investment companies
(OEICs), unit trusts and offshore funds. In certain circumstances a company’s holdings in such types of
fund are treated as creditor loan relationships. CFM43000 gives more detail.
Guidance on the taxation of OEICs, unit trusts and offshore funds is to be found in the Company
Taxation Manual (CTM48000) and in the Savings and Investment Manual (SAIM6000).
Building societies and industrial and provident societies
CTA09/S498 brings dividends and interest payable by building societies into the loan relationships
regime so far as they would not otherwise be within it. Guidance on the taxation of building societies is
to be found in the Company Taxation Manual (CTM49000).
CTA09/S499 treats dividends, bonuses and other sums payable on shareholdings in industrial and
provident societies, and in agricultural or fishing co-operatives, held for the purposes of a trade or for
other purposes as if it were interest arising on a loan relationship held for that purpose. It does not treat
the shares themselves as a loan relationship other than to allow dividends etc on shares held for the
purposes of a trade to be treated as trading income.
Arrangements that give an interest-like return
Certain financial arrangements provide a return that is economically equivalent to interest, but in legal
form is not interest. The arrangements that are brought within the loan relationships rules by virtue of
Part 6 are as follows.
Disguised interest
Legislation introduced in FA 2009 provides for interest-like returns from transactions that are not loan
or treated as loans to be taxed under the loan relationships rules. This legislation is a successor to the
shares as debt rules (see below). See CFM42000.
Alternative finance arrangements
Alternative finance arrangements are Shari’a-compliant financial arrangements that provide an interest-
like return without paying interest, for example by means of the purchase and sale of commodities, or
by profit-sharing. Where such arrangements provide a return that economically amounts to interest,
CTA09/PT6/CH6 the loan relationships rules tax it as such. See CFM44000.
Shares with guaranteed returns, returns from partnerships, shares treated as
liabilities
Certain shares and certain holdings in partnerships give a return that is very similar to the return from
holding debt. The ‘shares as debt’ rules in CTA09/PT6/CH7 and partnership returns rules in
CTA/PT6/CH8 bring these within the loan relationships rules. See CFM45000. These rules are
superseded by the ‘disguised interest’ rules introduced by FA 2009 (see above), except for rules on
‘shares treated as liabilities’ which continue the effect of certain features of the ‘shares as debt rules’.
Manufactured interest and repos
Assets such as securities may be lent or transferred to another company under a ‘sale and repurchase’
(repo) arrangement, which equates in substance to making a loan to and receiving interest from the
other company. CTA09/PT6/CH9 and CH10 bring these arrangements within the loan relationships
rules. See CFM46000.
Investment life insurance contracts
Profits and gains from certain life insurance contracts held by companies are treated as deriving from a
loan relationship by virtue of CTA09/PT6/CH11. CFM47000 gives an overview of this, and see the
HMRC Insurance Policyholder Taxation Manual (IPTM) for full guidance.
CFM41000 - Deemed loan relationships: money
debts
Contents
CFM41030 Deemed loan relationships: money debts other than discounts: trade debts: impairment
Deemed loan relationships: money debts other than discounts: trade debts: restrictions on
CFM41040
write-down
Deemed loan relationships: money debts other than discounts: trade debts: use of fair value
CFM41050
accounting
CFM41070 Deemed loan relationships: trade debts: releases where debtor and creditor are connected
CFM41080 Deemed loan relationships: trade debts: releases between unconnected companies
Deemed loan relationships: money debts other than discounts: related transactions for the
CFM41090
disposal of interest rights
Deemed loan relationships: money debts: discounts: tax consequences within loan
CFM41110
relationships
Deemed loan relationships: money debts: extended definition includes foreign exchange
CFM41120
differences
CFM41130 Deemed loan relationships: money debts: certain foreign exchange differences are excluded