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HMRC internal manual

Corporate Finance Manual

Loan relationships: tax avoidance: consideration not fully recognised by accounting practice


S455 has now been repealed by F(No.2)A15 for schemes effected on or after 18 November 2015. It is succeed by the {regime anti-avoidance rule CFM38600}.

Some companies seek artificially to shelter profits on their loan relationships (and derivative contracts - CFM56100) by transferring them to other companies in exchange for the issue of shares. It is claimed under GAAP that the transferor is not required to recognise any accounting profit. This is despite the fact that the shares obtained are fully marketable and are capable of being realised for the same cash value at which the loan relationship could have been sold.

FA96/SCH9/PARA11B was introduced by Finance Act 2008 to address this form of avoidance and has effect for disposals on or after 16 May 2008. The rule is now at CTA09/S455.

The new rule applies where there is:

  • a disposal in an accounting period (in whole or in part) of rights under a creditor loan relationship, and
  • the consideration for the disposal is not wholly in the form of money (or a debt that falls to be settled by way of money), and
  • the consideration, in accordance with GAAP, is not fully recognised in the disponor’s accounts for that accounting period or any other accounting period, and
  • the disponor has a ‘relevant avoidance intention’.

‘Relevant avoidance intention’ means the intention of eliminating or reducing the credits to be brought into account for the purposes of the loan relationship rules.

CTA09/S455 operates by bringing into account the full amount of the consideration received for the accounting period in which the disposal took place and takes priority over CTA09/PT5/CH4.

However, CTA09/S455 will not apply if the consideration brought into account in respect of the disposal is increased under the transfer pricing rules at TIOPA10/S147.

For guidance on the anti-avoidance rule on derecognition, see CFM39200+.