Revenue Note for Guidance
This section is an anti-avoidance provision that denies a trading deduction for interest payable on intra-group borrowings to purchase assets from a connected company.
(1)(a) & (b) The definition of “assets” does not include intellectual property that qualifies for capital allowances or trading stock within section 89. Revenue eBrief No. 11/11 provides guidance on the types of assets that will be treated as trading stock.
The definition of “loan” includes a promissory note and any other agreement or arrangement having a similar effect.
(2)(a) & (b) Interest on a loan from a connected company to purchase an asset from a connected company is not deductible in computing the profits or gains chargeable to corporation tax under Schedule D. Interest on any form of refinancing such a loan is similarly not deductible.
(3) Interest on a loan to acquire a trade, which prior to its acquisition was not within the charge to corporation tax, may be deducted in computing a company’s profits up to the amount of the income from the acquired trade.
(4) The acquisition of part of a trade is treated as if that part of the trade were itself a separate trade.
(5) Where the company begins to carry on an acquired trade or an acquired part of a trade as its own trade, the acquired trade or part of a trade is treated as a separate trade for the purposes of determining the limit to which interest can be deducted. The profits of that trade should be apportioned on a just and reasonable basis in order to determine the profits or gains of the separate trade.
(6)(a) Interest on a loan to a leasing company to acquire an asset, which, prior to its acquisition was not in use for the purposes of a trade carried on by a company within the charge to corporation tax, may be deducted in computing a company’s profits up to the amount of income from the acquired asset.
(6)(b) In order to determine the profits or gains of a trade attributable to an acquired asset, it will be necessary to apportion the expenses and receipts of that trade.
(7) Provision is made against the use of back-to-back loans with unconnected persons which prevents companies circumventing this section.
(8) Securitisation companies are dealt with in section 110 and are not within the scope of this section.
(9) Loans made under schemes or arrangements whereby a connected person loans or provides funds to an unconnected person and that unconnected person then makes a loan to the investing company, shall be treated as having been made by a connected person.
Relevant Date: Finance Act 2021