Finance Act 2009

Loan relationships involving connected debtor and creditor where debits exceed credits

4 (1) Section 418 of CTA 2009 (loan relationships treated differently by connected debtor and creditor) is amended as follows.

(2) In subsection (1)(b), for “A, B and C” substitute “A and B”.

(3) For subsections (2) to (4) substitute—

“(2) Condition A is that the rights under the loan relationship include provision by virtue of which the creditor company—

(a) is or may become entitled, or

(b) is or may be required,

to acquire (whether by conversion or exchange or otherwise) any shares in any company.

(3) Condition B is that—

(a) the debits brought into account by the debtor under this Part in respect of the loan relationship for any accounting period, exceed

(b) the credits brought into account (otherwise than as a result of this section) by the creditor in respect of the loan relationship for the corresponding accounting period or periods of the creditor.”

(4) After subsection (6) insert—

“(6A) For the purposes of this section the creditor is to be treated as continuing to be a party to the loan relationship even though the creditor has disposed of the creditor’s rights under the loan relationship to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

(6B) For the purposes of this section the creditor is to be treated as continuing to be a party to the loan relationship even though the creditor has disposed of the creditor’s rights under the loan relationship to another person if the disposal was made with the relevant avoidance intention.

(6C) The relevant avoidance intention is the intention of eliminating or reducing the credits to be brought into account for the purposes of this Part.”

(5) In subsection (7), for “Section 419 supplements” substitute “Sections 418A and 419 supplement”.

(6) In the heading, for “treated differently by connected debtor and creditor” substitute “involving connected debtor and creditor where debits exceed credits”.

(7) After section 418 insert—

“418A Cases involving host contract

(1) This section applies where the debtor or the creditor, in accordance with generally accepted accounting practice, treats the rights and liabilities under the loan relationship as divided between—

(a) rights and liabilities under a loan relationship (“the host contract”), and

(b) rights and liabilities under one or more derivative financial instruments or equity instruments.

(2) Where the debtor, in accordance with generally accepted accounting practice, treats the rights and liabilities under the loan relationship as so divided, section 418 has effect as if the reference to the loan relationship in subsection (3)(a) were to the host contract.

(3) Where the creditor, in accordance with generally accepted accounting practice, treats the rights and liabilities under the loan relationship as so divided, section 418 has effect as if the reference to the loan relationship in subsection (3)(b) were to the host contract.

(4) In this section “the debtor” and “the creditor” have the same meaning as in section 418.”

(8) The amendments made by this paragraph have effect in relation to debits and credits arising on or after 22 April 2009.