CFM6425 – Taxing loan relationships: money debts: sale of interest rights
Related transactions in respect of money debts
Avoidance disclosures indicated that companies were entering
into transactions to transfer the rights to interest shortly before
payment so that instead of receiving interest they received a sum
equal to the value of the interest. Since such sums may not be
interest it is argued that they are not within the scope of S100.
Accordingly S100(2ZA)(a) was inserted by Finance (No 2) Act
2005 to ensure that where a company has a money debt to which
S100(1)(c)(i) (money debts on which interest is payable) applies
then any profit from the disposal of its interest rights is bought
into charge as a loan relationship credit. A similar provision for
sales of rights to discount is in S100 (2ZA)(b)(ii).
The new rules apply:
- in the case of a money debt on which interest is payable, to profits (but not losses) arising to the company from any related transaction in respect of the right to receive interest
- in the case of a money debt on which discount arises, to profits (but not losses) arising to the company from any related transaction.
“Related transaction” takes its meaning from S 84(5)
as any disposal (in whole or part) of rights or liabilities under
the relationship.
The provision applies to related transactions taking place on
or after 16 March 2005.
