Part IVIncome Tax, Corporation Tax and Capital Gains Tax
Chapter IILoan relationships
Special cases
93Relationships linked to the value of chargeable assets
1
This section applies in the case of any loan relationship of a company that is linked to the value of chargeable assets unless it is one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.
2
The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of the relationship shall be confined to amounts relating to interest.
3
Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.
4
Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 had effect in relation to the asset representing the relationship as it has effect in relation to an asset that does not represent a loan relationship.
5
For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—
a
falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and
b
in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.
6
For the purposes of this section a loan relationship is linked to the value of chargeable assets if, in pursuance of any provision having effect for the purposes of that relationship, the amount that must be paid to discharge the money debt (whether on redemption of a security issued in relation to that debt or otherwise) is equal to the amount determined by applying a relevant percentage change in the value of chargeable assets to the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan from which the money debt arises.
7
In subsection (6) above the reference to a relevant percentage change in the value of chargeable assets is a reference to the amount of the percentage change (if any) over the relevant period in the value of chargeable assets of any particular description or in any index of the value of any such assets.
8
In subsection (7) above “the relevant period” means—
a
the period between the time of the original loan and the discharge of the money debt; or
b
any other period in which almost all of that period is comprised and which differs from that period exclusively for purposes connected with giving effect to a valuation in relation to rights or liabilities under the loan relationship.
9
If—
a
there is a provision which, in the case of any loan relationship, falls within subsection (6) above,
b
that provision is made subject to any other provision applying to the determination of the amount payable to discharge the money debt,
c
that other provision is to the effect only that the amount so payable must not be less than a specified percentage of the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan, and
d
the specified percentage is not more than 10 per cent.,
that other provision shall be disregarded in determining for the purposes of this section whether the relationship is linked to the value of chargeable assets.
10
For the purposes of this section an asset is a chargeable asset, in relation to a loan relationship of a company, if any gain accruing on the disposal of the asset by the company on or after 1st April 1996 would, on the assumptions specified in subsection (11) below, be a chargeable gain for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.
11
Those assumptions are—
a
where it is not otherwise the case, that the asset is an asset of the company;
b
that the asset is not one the disposal of which by the company would fall to be treated for the purposes of corporation tax as a disposal in the course of a trade carried on by the company; and
c
that chargeable gains that might accrue under section 116(10) of that Act (postponed charges) are to be disregarded.
12
In subsection (5) above references to a disposal, in relation to an asset, are references to anything which—
a
is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or
b
would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);
and the references to the acquisition of an asset shall be construed accordingly.
13
For the purposes of this section neither—
a
the retail prices index, nor
b
any similar general index of prices published by the government of any territory or by the agent of any such government,
shall be taken to be an index of the value of chargeable assets.