Deemed loan relationships—shares accounted for as liabilities
Deemed loan relationships—shares accounted for as liabilities

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

  • Deemed loan relationships—shares accounted for as liabilities
  • What are the shares accounted for as liabilities rules aiming at?
  • Conditions for the shares accounted for as liabilities rules to apply
  • Conditions—issuing company accounts for shares as a liability
  • Conditions—return economically equivalent to interest
  • Conditions—companies must not be connected
  • Effect of shares accounted for as liabilities rules applying
  • Exclusions
  • Exclusions—no unallowable purpose
  • Exclusions—excepted shares
  • 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 transaction 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 other 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 shares accounted for as liabilities rules aiming at?

The shares accounted for as liabilities rules, along with the disguised interest rules, are aimed at bringing arrangements which produce a return which represents, or is economically equivalent to, interest