Taxation of loan relationships—impairment and debt releases
Taxation of loan relationships—impairment and debt releases

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

  • Taxation of loan relationships—impairment and debt releases
  • What happens when a debt is impaired or released?
  • Impairment
  • Debt releases
  • Summary of tax treatment
  • Rules only apply where amortised cost basis of accounting is used
  • Debtors—overview
  • Debtors—statutory insolvency arrangements
  • Debtors—debt-for-equity swaps
  • ‘In consideration of’
  • More...

Taxation of loan relationships—impairment and debt releases

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

A foundational principle of the loan relationships regime is that the profits and losses to be brought into account for corporation tax purposes on a company’s loan relationships are calculated by reference to the treatment of those loan relationships in the company's financial statements. For this reason, it is often said that the tax treatment of loan relationships ‘follows the accounts’. For the general 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—the main rules.

In certain situations, however, the loan relationships rules require the tax treatment of a company's loan relationships to depart from the accounting measure of profit and loss. One such situation is where a debt falling to be taxed within the loan relationships rules:

  1. becomes

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