Corporation Tax

What is a loan relationship?

Produced by Tolley
  • 05 Nov 2021 06:54

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • What is a loan relationship?
  • When does a company have a loan relationship?
  • What is a money debt?
  • What is a debt?
  • What is a transaction for the lending of money?
  • Money debts which do not arise from transactions for the lending of money
  • Rights conferred by shares
  • Relationships treated as loan relationships
  • Relevant non-lending relationships
  • Guarantees

What is a loan relationship?

Almost all companies will have some loan relationships. However, some items that are commonly assumed to be loan relationships are not (eg outstanding consideration for the sale / purchase of property and inter-company balances relating to unpaid amounts for goods or services, in each case where there is no supporting written instrument). Conversely, there are also items that do not meet the strict definition of loan relationship but which are deemed to be a loan relationship for tax purposes.

This note provides guidance on the definition of a loan relationship. For a discussion of the taxation of loan relationships, see the Taxation of loan relationships guidance note and for a more detailed consideration of the loan relationships regime in its entirety, see Simon’s Taxes D1.7.

For a practical summary to tackling the legislation in this area, see the What is meant by a loan relationship ― practical approach guidance note.

An overview of the loan relationships regime is provided in the Loan relationships ― basics video. Topics include definitions, tax treatment, capitalised interest, ceasing to be UK resident, unallowable purpose and anti-avoidance provisions. Illustrative calculations are also provided.

HMRC’s Corporate Finance Manual contains detailed guidance on its interpretation of these rules at CFM30000 onwards.

When does a company have a loan relationship?

A company has a loan relationship if:

  1. there is a money debt (in respect of which the company stands in the position of a creditor or debtor), and

  2. the debt arises from a transaction for the lending of money

CTA 2009, s 302; CFM31010

For a loan relationship to exist, this core definition must be met. It does not matter whether the debt is secured or unsecured and whether the other party is a company or not.

It is important to note that if a company is owed money, it stands in the position of creditor and has a creditor relationship. Conversely, if the company owes money, it stands in the position of debtor and has

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