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Finance Act 2014

Section 28: De-Grouping Charges (Loan Relationships Etc)


1.This section amends the corporation tax rules that apply where a company to which a loan relationship or a derivative contract has been transferred subsequently leaves a group.

Details of the Section

2.Subsection (1) introduces changes to the Corporation Tax Act 2009 (CTA 2009).

3.Subsection (2) amends sections 345 and 346 of CTA 2009.  These sections apply where a loan relationship is transferred from one company to another in the same group of companies. In such cases the loan relationship is transferred at a notional carrying value.  If the company to which the loan relationships is transferred is itself sold out of the group within six years of the date of transfer there is a deemed disposal and reacquisition of the loan relationship for its fair value immediately before the transferee company leaves the group.  As a consequence, amounts may arise under the loan relationships rules as credits and debits.  However, this ‘de-grouping’ charge currently operates, in most cases, to bring into account for tax purposes only loan relationships credits.

4.The amendments made by subsection (2) remove the conditions that restrict the application of the rule to loan relationship credits, so that in future the de-grouping charge will bring into account both credits and debits in all cases.

5.Subsection (3) make the same change to the equivalent rules that apply to derivative contracts.

6.Subsection (4) provides that these changes have effect for de-groupings that take place on or after 1 April 2014.

Background Note

7.At Budget 2013 the Government announced a review of the legislation governing the taxation of corporate debt (‘loan relationships’) and derivative contracts.  The aim of the review is to make the legislation simpler and more certain, as well as more resistant to abuse. A consultation document Modernising the taxation of corporate debt and derivative contracts was published in June 2013, and the Government’s response to the consultation was published in December 2013.

8.The consultation document reviewed and set out proposals for changes to a wide range of the provisions relating to loan relationships and derivative contracts, including a change to the de-grouping rules.

9.Subject to further consultation, it is envisaged that most of these changes will be enacted in Finance Bill 2015. However, some changes will be made in Finance Act 2014, including the change in this measure.

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