D1.751 Impairment relief for loan relationships—Connected parties
The general rule is that where the debtor and creditor in a loan relationship are connected in any part of an accounting period (see D1.720), the creditor may not claim relief for any impairment loss which arises in that accounting period1. If the creditor company accounts for a loan relationship using a fair value basis, the loan relationship computation must be on an amortised cost basis (see D1.721) so that a reduction of the value of the debt in the accounts will not be carried into the tax computation.
Where the debtor company is connected with the creditor company and it is released from its obligation to pay all or part of an amount due under the terms of the loan relationship, the debtor company is not required to include the amount that is released in computing its profits for the purposes of the loan relationships legislation. This remains the case even if the creditor company is not within the charge to the loan relationships legislation, for example because it is not resident in the United Kingdom and the loan relationship is not attributable to a permanent establishment which it has in the United Kingdom2. A debtor company is required to include the amount of a deemed release that takes place, however, under the provisions of CTA 2009, ss 361, 362 in computing its loan relationship profits (see below)3.
CTA 2009, s 358 will not prevent the release of a debtor relationship from being taxable