Loan relationships—groups: degrouping and anti-avoidance
Loan relationships—groups: degrouping and anti-avoidance

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

  • Loan relationships—groups: degrouping and anti-avoidance
  • Continuity of treatment—the degrouping charge
  • The degrouping charge—the basic rule (no exempt distribution)
  • The degrouping charge—degrouping on an exempt distribution
  • Continuity of treatment—specific targeted anti-avoidance rule

The general rule is that:

  1. the credits (broadly, but not necessarily, profits), and

  2. debits (broadly, but not necessarily, losses)

arising to a company from its corporate finance transactions which are to be brought into account for tax purposes under the loan relationships regime are computed in accordance with those recognised in determining a company's profit or loss (as disclosed in the company's relevant accounts) for an accounting period in accordance with generally accepted accounting practice (GAAP)—ie the tax will generally follow the accounts).

For more on the basic computational rules that permeate the loan relationships regime, and its general, close, reliance on GAAP, see Practice Notes: Loan relationships—accounting framework and principles and Taxation of loan relationships.

There are, however, a number of specific circumstances where the tax rules will necessarily depart from this basic reliance on the company's accounting treatment—ie the loan relationship regime incorporates specific statutory rules that will override the accounting treatment in particular situations.

The loan relationships regime contains rules that allow companies which are members of the same group to transfer the financial asset or liability represented by a loan relationship to another member of the group on a tax neutral basis. In such cases, the loan relationships regime contains prescriptive provisions about how credits and debits are to be brought into account for tax purposes.

The special rules are described in