Q&As

Is there a disposal which creates a chargeable gain when a simple debt (ie not a security) is converted into a qualifying corporate bond by the issue of an instrument and where the creditor is not the original creditor?

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Published on LexisPSL on 12/11/2019

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • Is there a disposal which creates a chargeable gain when a simple debt (ie not a security) is converted into a qualifying corporate bond by the issue of an instrument and where the creditor is not the original creditor?

Is there a disposal which creates a chargeable gain when a simple debt (ie not a security) is converted into a qualifying corporate bond by the issue of an instrument and where the creditor is not the original creditor?

We have assumed that all relevant parties are UK resident companies.

We have also assumed the following scenario:

  1. X Ltd owes money to Y Ltd, but not as a result of the lending of money (it could be because Y Ltd previously supplied X Ltd with goods or services that have not been paid for). This is a debt, and debts are assets for chargeable gains purposes. However, as the debt did not arise from a transaction for the lending of money, it is not a loan relationship for the purposes of the corporate debt rules, and also not a qualifying corporate bond (QCB) for the purposes of the chargeable gains rules

  2. Y Ltd assigns the debt to Z Ltd. Assuming that the debt is not a debt on a security, this will not result in a chargeable gain for Y Ltd. A debt on a security is not defined by the legislation, but case law suggests that it means a debt that is capable of being held as an investment and realised for profit

  3. X Ltd issues an instrument to Z Ltd to represent security for

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