CFM5505 - Taxing loan relationships: connection and impairment: related transactions

Related transactions

When a company disposes of a loan relationship, this is a related transaction and any profits or losses on disposal are brought in as credits or debits under FA96/S84.

Where the companies are connected, and the creditor company sells the loan relationship to an unconnected third party, the provisions in FA96/SCH9/PARA6 (6) and (7) adjust any loss (or profit) on disposal. This prevents a creditor from getting any bad debt relief or impairment loss it was previously denied because of the connection, by instead bringing in the loss on disposal.

Para 6(6) and 6(7) also apply where the companies are connected, and the creditor unconditionally releases a debt in full. This is because the creditor ceases to be party to that loan relationship – it has effectively disposed of the loan relationship.

The scope of this rule was extended in FA04 so that it applies in the case of any related transaction ( CFM5065) on or after 2 December 2004. This ensures the rule applies to partial as well as outright disposals of a loan relationship.