Finance (No. 2) Act 2005

Transferee leaving group after replacing transferor as party to loan relationship

18 (1) In Schedule 9 to FA 1996 (loan relationships) after paragraph 12 insert—

“Transferee leaving group after replacing transferor as party to loan relationship

12A (1) This paragraph applies in any case where—

(a) paragraph 12 above applies—

(i) by virtue of sub-paragraph (1)(a) of that paragraph (“case A”), or

(ii) by virtue of sub-paragraph (1)(b) of that paragraph (“case B”), but

(b) before the end of the relevant 6 year period, the transferee company ceases to be a member of the relevant group.

(2) In any such case, this Chapter shall have effect as if the transferee company had—

(a) immediately before that cessation, assigned the asset or liability representing the relevant loan relationship for a consideration of an amount equal to its fair value at that time, and

(b) immediately reacquired it for a consideration of the same amount,

but only if Condition 1 or 2 below is satisfied and sub-paragraph (5) below does not apply.

(3) Condition 1 is that if sub-paragraph (2) above has effect, a credit would in consequence of paragraph (a) of that sub-paragraph fall to be brought into account for the purposes of this Chapter by the transferee company.

(4) Condition 2 is that—

(a) Condition 1 is not satisfied,

(b) the loan relationship is a creditor relationship,

(c) the company has a hedging relationship between a derivative contract and the creditor relationship, and

(d) in consequence of paragraph 30A(2)(a) of Schedule 26 to the Finance Act 2002, a credit falls to be brought into account by the transferee company for the purposes of that Schedule in respect of the derivative contract.

(5) Where the transferee company ceases to be a member of the relevant group by reason only of an exempt distribution (see sub-paragraph (8))—

(a) sub-paragraph (2) above does not have effect, but

(b) if there is chargeable payment within 5 years after the making of the exempt distribution, sub-paragraph (6) below applies.

(6) Where this sub-paragraph applies, this Chapter shall have effect as if—

(a) the transferee company had, immediately before the making of the chargeable payment, assigned the asset or liability representing the relevant loan relationship,

(b) the assignment had been for a consideration of an amount equal to the fair value of the asset or liability immediately before the transferee company ceased to be a member of the relevant group, and

(c) the transferee company had immediately reacquired the asset or liability for a consideration of the same amount,

but only if Condition 1 or 2 above, as modified by sub-paragraph (7) below, is satisfied.

(7) The modifications are that—

(a) in Condition 1, the references to sub-paragraph (2) above, and paragraph (a) of that sub-paragraph, are to be taken respectively as references to sub-paragraph (6) above and paragraphs (a) and (b) of that sub-paragraph, and

(b) in Condition 2, the reference to paragraph 30A(2)(a) of Schedule 26 to the Finance Act 2002 is to be taken as a reference to paragraph 30A(6)(a) and (b) of that Schedule.

(8) In this paragraph—

• “assignment”, in relation to Scotland, means an assignation;

• “chargeable payment” has the meaning given by section 214(2) of the Taxes Act 1988;

• “exempt distribution” means a distribution which is exempt by virtue of section 213(2) of the Taxes Act 1988;

• “the relevant 6 year period” means the period of 6 years following—

  (a)

  in case A, the transaction mentioned in paragraph 12(1)(a) above, or

  (b)

  in case B, the last of the series of transactions mentioned in paragraph 12(1)(b) above;

• “the relevant group” means—

  (a)

  in case A, the group mentioned in paragraph 12(1)(a) above, or

  (b)

  in case B, the group mentioned in paragraph 12(1)(b) above;

• “the relevant loan relationship” means the loan relationship mentioned in paragraph 12(1) above;

• “the transferee company” means the company referred to as such in paragraph 12(1) above.

(9) Paragraph 12(14) of Schedule 26 to the Finance Act 2002 (hedging relationships) has effect for the purposes of this paragraph.”.

(2) The amendment made by this paragraph has effect where a company ceases to be a member of a group on or after 16th March 2005.