Deemed loan relationships—disguised interest
Deemed loan relationships—disguised interest

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Deemed loan relationships—disguised interest
  • What are the disguised interest rules aiming at?
  • When do the disguised interest rules apply?
  • Economically equivalent to interest—meaning
  • Economically equivalent to interest—time value of money
  • Economically equivalent to interest—commercial rate of return
  • Economically equivalent to interest—no practical likelihood
  • Effect of disguised interest rules applying
  • Artificial splitting of return
  • Exclusions
  • more

A ‘loan relationship’ is defined as a money debt arising from the lending of money. However, this definition does not reflect all the types of arrangements and transactions which are taxed within the loan relationships regime. The scope of the regime is specifically extended to cover certain other arrangements and transactions which are regarded as being equivalent to debt finance. These are commonly referred to as ‘deemed loan relationships’ and include certain arrangements which, while not falling within the definition of loan relationship, produce a return that is economically equivalent to interest (sometimes referred to as an interest-like return).

For more on the definition of loan relationship and the various types of ‘deemed loan relationships’ falling within the scope of the loan relationships taxing regime, see Practice Note: Scope of the loan relationships regime. For the general computational rules governing how profits and losses on loan relationships are calculated and brought into account for corporation tax purposes, see Practice Note: Taxation of loan relationships, and for the relevant accounting rules framework, see Practice Note: Loan relationships—accounting framework and principles.

What are the disguised interest rules aiming at?

The disguised interest rules are aimed at bringing arrangements which produce interest-like returns within the loan relationships taxing regime.

The rules were brought in by Finance Act 2009 to replace the more narrowly focused 'shares