Corporation Tax Act 2010 (c. 4)

Part 10 U.K. Close companies

Chapter 3 U.K. Charge to tax in case of loan to participator

Taxation of debtor on release of loan to trustees of settlement which has ended U.K.

463 Taxation of debtor on release of loan to trustees of settlement which has ended U.K.

(1) This section applies if each of conditions A to D is met.

(2) Condition A is that a company (X) is or was chargeable to tax under section 455 (charge to tax in the case of loan to participator) in respect of a loan or advance made to the trustees of a settlement.

(3) Condition B is that X releases or writes off the whole or part of the debt in respect of the loan or advance.

(4) Condition C is that the person from which the debt was due at the time of the release or writing off is a company (Y).

(5) Condition D is that the release or writing off takes place after the settlement has ended.

(6) When the release or writing off takes place, Y is treated as receiving an amount to which the charge to corporation tax on income applies.

(7) The amount which Y is treated as receiving is equal to—

where—

N is the amount released or written off, and

R is a percentage rate equal to the dividend ordinary rate specified in section 8(1) of ITA 2007 for the tax year in which the release or writing off takes place.