GLOSSARY

Loan notes definition

/ləʊn/ /nəʊt/

What does Loan notes mean?

Loan notes are a type of financial instrument evidencing a loan agreement between a borrower and lender. The loan note document will set out the amount of the loan, details of any interest payments and the date upon which the loan must be repaid. 

Loan notes may be used in a variety of scenarios. For example, a shareholder may be given loan notes as consideration or part consideration on the sale of a business. 
 
The tax treatment of loan notes depends upon whether they are structured as qualifying corporate bonds (QCBs) or non-qualifying corporate bonds (non-QCBs). QCBs are exempt assets for capital gains tax purposes which means that the gains arising on sale are not taxable and losses are not allowable. Non-QCBs are chargeable assets for capital gains tax purposes. 
 
Anti-avoidance provisions exist which prevent companies from converting non-QCBs into QCBs and vice versa. This is in order to prevent abuse of the capital gains tax exemption.

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