CFM6308 - Taxing Loan relationships: anti-avoidance: imported losses: buying losses
Loss buying
FA96/SCH9/PARA10 (4) ensures that the loss is disallowed even if the loan relationship is transferred to another company.
Example
Pirt SA, a non-UK resident company, buys loan stock in an
unconnected company on 1 June Year 1 for £100,000, receiving
interest at 5%. By the end of Year 2, the loan stock is worth only
£30,000 because the issuing company is in financial
difficulties and may not be able to repay the loan, though it does
still manage to pay the interest.
At the beginning of Year 3, Pirt SA migrates to the UK and
sells the loan relationship to a fellow UK group member, Jik Ltd,
for £100,000. At the end of Year 4, Jik Ltd sells the stock to
an unconnected person for £10,000.
Pirt SA
| Year 1 | Interest accrued | £5,000 |
| Year 2 | Interest accrued | £5,000 |
| Loss on sale to Jik Ltd | 0 * |
The companies are members of the same group, therefore
FA96/SCH9/PARA12 will apply to prevent any loss or profit on
transfer (see
CFM5800 for more on Para 12 and
intra-group transfers).
Jik Ltd
| Year 3 | Interest accrued | £5,000 |
| Year 4 | Interest accrued | £5,000 |
| Loss on sale | (£90,000) | |
| Para 10 adjustment | £70,000 * |
£70,000 of the loss refers to the pre-migration period.
