Finance (No. 2) Act 2017

Meaning of “outstanding”: quasi-loans U.K.

11 (1) An amount of a quasi-loan is outstanding for the purposes of [F1 paragraphs 1 and 1A] if the initial debt amount exceeds the repayment amount. U.K.

(2) In sub-paragraph (1) “initial debt amount”, in relation to a quasi-loan, means the total of—

(a) an amount equal to the value of the acquired debt (see paragraph 2(2)), and

(b) where P subsequently acquires a further right (an “additional debt”) to a payment, or transfer of assets, in connection with the payment mentioned in paragraph 2(3)(a) or (as the case may be) the transfer mentioned in paragraph 2(3)(b), an amount equal to the value of the additional debt.

(3) For the purposes of sub-paragraph (2)—

(a) where the acquired debt is a right to payment of an amount, the “value” of the debt is that amount,

(b) where the additional debt is a right to payment of an amount, the “value” of the debt is that amount, but is nil if the additional debt accrued to P by the capitalisation of interest on the acquired debt or another additional debt, and

(c) where the acquired debt or additional debt is a right to a transfer of assets, the “value” of the debt is an amount equal to—

(i) the market value of the assets at the time the right is acquired (or the value of the right at that time if the assets are non-fungible and not in existence at that time), or

(ii) if higher, the cost of the assets at that time.

(4) In sub-paragraph (1) “repayment amount”, in relation to a quasi-loan, means the total of—

(a) the amount (if any) by which the initial debt amount has been reduced (by way of repayment) before 17 March 2016,

(b) payments in money (if any) made by the relevant person on or after 17 March 2016 by way of repayment of the initial debt amount, and

(c) if the acquired debt or an additional debt is a right to a transfer of assets, and the assets have been transferred, an amount equal to the market value of the assets at the time of the transfer.

Textual Amendments

F1 Words in Sch. 11 para. 11(1) substituted (22.7.2020) by Finance Act 2020 (c. 14), Sch. 2 para. 33

12 (1) A payment or transfer is to be disregarded for the purposes of paragraph 11(4)(b) or (c) if— U.K.

(a) there is any connection (direct or indirect) between the payment or transfer and a tax avoidance arrangement (other than the arrangement under which the quasi-loan was made), or

(b) the payment or the asset transferred, or a sum or asset directly or indirectly representing the payment or asset, is the subject of a relevant step (as defined in section 554A(2) of ITEPA 2003) that is taken—

(i) after the payment is made or the asset transferred, but

(ii) before the end of 5 April 2019.

(2) But a payment or transfer is not to be disregarded under sub-paragraph (1)(b) if, by the end of 5 April 2019, each relevant tax liability has been paid in full.

(3) For the purposes of this paragraph, each of the following is a “relevant tax liability”—

(a) any liability for income tax arising by virtue of the application of Chapter 2 by reason of the relevant step mentioned in sub-paragraph (1)(b), and

(b) where section 554Z6 of ITEPA 2003 (overlap with certain earnings) applies because that relevant step gives rise to relevant earnings for the purposes of that section, any liability for income tax in respect of those relevant earnings.

(4) Sub-paragraph (5) applies if a payment is disregarded under sub-paragraph (1)(b).

(5) The value of [F2 a relevant step treated as taken by paragraph 1 or 1A] is not reduced under section 554Z5(3) of ITEPA 2003 (overlap with money or asset subject to earlier tax liability) by the amount of the sum, or the value of the asset, which is the subject of the relevant step mentioned in sub-paragraph (1)(b) unless the payment condition is met by reason of section 554Z5(4)(a) and (b)(ii) being met.

Textual Amendments

F2 Words in Sch. 11 para. 12(5) substituted (22.7.2020) by Finance Act 2020 (c. 14), Sch. 2 para. 34

13 (1) This paragraph applies where— U.K.

(a) a person (“P”) has made a quasi-loan to a relevant person,

(b) the quasi-loan was made on or after [F3 9 December 2010], and

(c) before the end of 5 April 2019, A or B acquires (whether or not for consideration) a right to the payment or transfer of assets mentioned in paragraph 2(2)(a).

(2) The amount equal to the value of the right acquired by A or B is to be treated—

(a) for the purposes of paragraph 1(1) as an amount, of the quasi-loan made by P to the relevant person, that is outstanding immediately before the end of 5 April 2019;

(b) for the purposes of [F4 paragraphs 1(4) and 1A(5)] and section 554Z3(1) of ITEPA 2003, as an amount of the quasi-loan that is outstanding at the time P is treated as taking the relevant step under paragraph 1(1).

(3) For the purposes of sub-paragraph (2)—

(a) where the right acquired by A or B is a right to payment of an amount, the “value” of the right is that amount;

(b) where the right acquired by A or B is a right to a transfer of assets, the “value” of the right is an amount equal to—

(i) the market value of the assets at the time the right is acquired (or the value of the right at that time if the assets are non-fungible and not in existence at that time), or

(ii) if higher, the cost of the assets at that time.

(4) Where a loan or a quasi-loan made by P to a relevant person is replaced, directly or indirectly, by a quasi-loan or another quasi-loan (the “replacement quasi-loan”), references in sub-paragraphs (1) and (2) to the quasi-loan are references to the replacement quasi-loan.

Textual Amendments

F3 Words in Sch. 11 para. 13(1)(b) substituted (22.7.2020) by Finance Act 2020 (c. 14), Sch. 2 para. 7

F4 Words in Sch. 11 para. 13(2)(b) substituted (22.7.2020) by Finance Act 2020 (c. 14), Sch. 2 para. 35