Debt restructurings—tax issues on acquisitions of distressed debt
Produced in partnership with Jenny Doak of Weil Gotshal & Manges LLP

The following Tax practice note produced in partnership with Jenny Doak of Weil Gotshal & Manges LLP provides comprehensive and up to date legal information covering:

  • Debt restructurings—tax issues on acquisitions of distressed debt
  • Choosing an acquisition vehicle
  • Using a UK corporate vehicle
  • Withholding tax
  • Taxation of profits—securitisation company regime
  • Taxation of profits—no securitisation
  • Using an offshore vehicle
  • Withholding tax—treaty relief
  • Withholding tax—qualifying private placement (QPP) exemption
  • Liability to UK corporation tax—servicing arrangements
  • More...

Debt restructurings—tax issues on acquisitions of distressed debt

Certain economic climates can mean distressed debt portfolios changing hands. In such climates, banks typically 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:

  1. tax issues on debt restructurings

  2. the enforcement of debts

In addition, a checklist summarises the key points to consider when dealing with distressed debt.

For the technical provisions in the loan relationships rules dealing with impairments of debt and debt releases, see Practice Notes: Loan relationships—impairment and debt releases and Loan relationships—impairment and debt releases: connected companies.

This Practice Note assumes that:

  1. borrowers under NPLs are UK resident, and

  2. 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 or the security, or the governing law), the tax position in

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