The following Tax guidance note Produced in partnership with Jenny Doak of Vinson & Elkins RLLP provides comprehensive and up to date legal information covering:
The economic climate can lead to instances of distressed debt portfolios changing hands. In such a climate, typically banks seek to reduce their balance sheet exposure to struggling businesses or individuals, while private equity and other funds see opportunities to make a profit from the purchase and subsequent realisation or repayment of the debt in distressed portfolios.
This Practice Note outlines the tax issues which should be considered where a portfolio of distressed debt is acquired. In this Practice Note, distressed debt is referred to as non-performing loans (NPLs). Example of NPLs could include, for example, residential mortgage loans or corporate debt.
Other Practice Notes in this series cover the tax issues relating more specifically to:
tax issues on debt restructurings
the enforcement of debts
In addition, a checklist summarises the key points to consider when dealing with distressed debt.
For a closer look at the technical provisions dealing with debt releases in the loan relationships legislation, see Practice Notes: Impairment losses and debt releases and Impairment and debt releases—connected companies.
This Practice Note assumes that:
borrowers under NPLs are UK resident, and
interest due on NPLs has a UK source
However in all cases where NPLs have a connection with a jurisdiction other than the UK (such as the location of the borrower, the security or the governing law), the tax position in that other jurisdiction
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