1(1)A person (“P”) is treated as taking a relevant step for the purposes of Part 7A of ITEPA 2003 if—
(a)P has made a loan, or a quasi-loan, to a relevant person,
(b)the loan or quasi-loan was made on or after 6 April 1999, and
(c)an amount of the loan or quasi-loan is outstanding immediately before the end of 5 April 2019.
(2)P is treated as taking the step immediately before—
(a)the end of the approved repayment date, if P has made a loan which is an approved fixed term loan on 5 April 2019, or
(b)the end of 5 April 2019, in any other case.
(3)Where P is treated by this paragraph as taking a relevant step, references to “the relevant step” in section 554A(1)(e)(i) and (ii) of ITEPA 2003 have effect as if they were references to the step of making the loan or, as the case may be, quasi-loan.
(4)For the purposes of section 554Z3(1) of ITEPA 2003 (value of relevant step), the step is to be treated as involving a sum of money equal to the amount of the loan or quasi-loan that is outstanding at the time P is treated as taking the step.
(5)Subsections (2) and (3) of section 554C of ITEPA 2003 (“relevant person”) apply for the purposes of this Schedule as they apply for the purposes of that section.
(6)Sub-paragraph (1) is subject to paragraphs 23 and 24 (accelerated payments).
(7)For the purposes of this paragraph, whether an amount of a loan or quasi-loan is outstanding at a particular time—
(a)is to be determined in accordance with the following provisions of this Schedule, and
(b)does not depend on the loan or quasi-loan subsisting at that time.
(8)References in this Schedule and in Part 7A of ITEPA 2003 to a relevant step within paragraph 1 of this Schedule are to be read as references to a relevant step which a person is treated by this paragraph as taking.
2(1)In this Part of this Schedule “loan” includes—
(a)any form of credit;
(b)a payment that is purported to be made by way of a loan.
(2)For the purposes of paragraph 1, P makes a “quasi-loan” to a relevant person if (and when) P acquires a right (the “acquired debt”)—
(a)which is a right to a payment or a transfer of assets, and
(b)in respect of which the condition in sub-paragraph (3) is met.
(3)The condition is met in relation to a right if there is a connection (direct or indirect) between the acquisition of the right and—
(a)a payment made, by way of a loan or otherwise, to the relevant person, or
(b)a transfer of assets to the relevant person.
(4)Where a quasi-loan or a loan made by P to a relevant person is replaced, directly or indirectly, by a loan or another loan (the “replacement loan”), references in paragraph 1 to the loan are references to the replacement loan.
(5)Where a loan or a quasi-loan made by P to a relevant person is replaced, directly or indirectly, by a quasi-loan or another quasi-loan (the “replacement quasi-loan”), references in paragraph 1 to the quasi-loan are references to the replacement quasi-loan.
(6)In this Part of this Schedule, “approved repayment date”, in relation to an approved fixed term loan, means the date by which, under the terms of the loan at the time of making the application for approval under paragraph 20, the whole of the loan must be repaid.
3(1)An amount of a loan is “outstanding” for the purposes of paragraph 1 if the relevant principal amount exceeds the repayment amount.
(2)In sub-paragraph (1) “relevant principal amount”, in relation to a loan, means the total of—
(a)the initial principal amount lent, and
(b)any sums that have become principal under the loan, otherwise than by capitalisation of interest.
(3)In sub-paragraph (1) “repayment amount”, in relation to a loan, means the total of—
(a)the amount of principal under the loan that has been repaid before 17 March 2016, and
(b)payments in money made by the relevant person on or after 17 March 2016 by way of repayment of principal under the loan.
4(1)A payment is to be disregarded for the purposes of paragraph 3(3)(b) if—
(a)there is any connection (direct or indirect) between the payment and a tax avoidance arrangement (other than the arrangement under which the loan was made), or
(b)the payment, or a sum or asset directly or indirectly representing the payment, is the subject of a relevant step (as defined in section 554A(2) of ITEPA 2003) that is taken—
(i)after the payment is made, but
(ii)before the end of the relevant date.
(2)But a payment is not to be disregarded under sub-paragraph (1)(b) if, by the end of the relevant date, each relevant tax liability has been paid in full.
(3)For the purposes of this paragraph, each of the following is a “relevant tax liability”—
(a)any liability for income tax arising by virtue of the application of Chapter 2 by reason of the relevant step mentioned in sub-paragraph (1)(b), and
(b)where section 554Z6 of ITEPA 2003 (overlap with certain earnings) applies because that relevant step gives rise to relevant earnings for the purposes of that section, any liability for income tax in respect of those relevant earnings.
(4)In this paragraph, “relevant date” means—
(a)the approved repayment date, if P has made a loan which is an approved fixed term loan on 5 April 2019, or
(b)5 April 2019, in any other case.
(5)Sub-paragraph (6) applies if a payment is disregarded under sub-paragraph (1)(b).
(6)The value of the relevant step treated as taken by paragraph 1 is not reduced under section 554Z5(3) of ITEPA 2003 (overlap with money or asset subject to earlier tax liability) by the amount of the sum, or the value of the asset, which is the subject of the relevant step mentioned in sub-paragraph (1)(b) unless the payment condition is met by reason of section 554Z5(4)(a) and (b)(ii) being met.
5(1)This paragraph applies where—
(a)a person (“P”) has made a loan to a relevant person,
(b)the loan was made on or after 6 April 1999, and
(c)before the end of 5 April 2019, A or B acquires (whether or not for consideration) a right to payment of the whole or part of the loan.
(2)The amount of the loan in respect of which A or B acquires a right to payment is to be treated—
(a)for the purposes of paragraph 1(1) as an amount, of the loan made by P to the relevant person, that is outstanding immediately before the end of 5 April 2019;
(b)for the purposes of paragraph 1(4) and section 554Z3(1) of ITEPA 2003, as an amount of the loan that is outstanding at the time P is treated as taking the relevant step under paragraph 1(1).
(3)Where a quasi-loan or a loan made by P to a relevant person is replaced, directly or indirectly, by a loan or another loan (the “replacement loan”), references in sub-paragraphs (1) and (2) to the loan are references to the replacement loan.
6(1)In paragraphs 7 to 10 “the loan currency”, in relation to a loan, means the currency in which the initial principal amount of the loan is denominated (whether or not that amount is paid in that currency).
(2)For the purposes of paragraphs 7 to 10, the value of an amount in a particular currency is to be determined by reference to an appropriate spot rate of exchange.
7(1)This paragraph applies in relation to a loan where the loan currency is a currency other than sterling.
(2)But this paragraph does not apply if paragraph 10 applies in relation to the loan.
(3)The amount of the loan that is outstanding, at the time P is treated as taking the relevant step, is to be calculated in sterling as follows—
Step 1
Calculate, in the loan currency, the amount that is outstanding at that time.
Step 2
Take the value in sterling, at that time, of that amount.
(4)See paragraph 8 for provision about repayments made in a currency other than the loan currency.
8(1)This paragraph applies in relation to a loan where—
(a)payments in money are made by way of repayment of principal under the loan, and
(b)some or all of the payments are made in a currency other than the loan currency.
(2)But this paragraph does not apply if paragraph 10 applies in relation to the loan.
(3)For the purposes of calculating the repayment amount in relation to the loan, the amount of each of the payments referred to in sub-paragraph (1)(b) is an amount equal to its value in the loan currency on the date it is made.
9(1)Paragraph 10 applies in relation to a loan where—
(a)the loan currency is a currency other than sterling, and
(b)it is reasonable to suppose that the main reason, or one of the main reasons, for the loan being made in that currency is that the loan currency is expected to depreciate as against sterling during the loan period.
(2)The “loan period”, in relation to a loan, is the period—
(a)beginning at the time the loan is made, and
(b)ending with the time by which, under the terms of the loan, the whole of the loan is to be repaid.
10(1)Where this paragraph applies in relation to a loan—
(a)paragraphs 7 and 8 do not apply in relation to the loan, and
(b)sub-paragraphs (2) to (5) apply for the purposes of calculating the amount of the loan that is outstanding at the time P is treated as taking the relevant step.
(2)The relevant principal amount, in relation to the loan, is an amount equal to the total of—
(a)the value in sterling, at the reference date, of the initial principal amount lent, and
(b)the value in sterling, at the reference date, of any sums that become principal under the loan, otherwise than by capitalisation of interest.
(3)The “reference date”—
(a)in relation to an amount within sub-paragraph (2)(a), means the date on which the loan is made, and
(b)in relation to a sum within sub-paragraph (2)(b), means the date on which the sum becomes principal.
(4)The repayment amount, in relation to the loan, is an amount equal to the total of—
(a)the amount of principal under the loan that has been repaid in sterling, and
(b)where payments are made, in a currency other than sterling, by way of repayment of principal under the loan, the amount equal to the sterling value of the payments.
(5)The “sterling value” of a payment is its value in sterling on the date it is made.
11(1)An amount of a quasi-loan is outstanding for the purposes of paragraph 1 if the initial debt amount exceeds the repayment amount.
(2)In sub-paragraph (1) “initial debt amount”, in relation to a quasi-loan, means the total of—
(a)an amount equal to the value of the acquired debt (see paragraph 2(2)), and
(b)where P subsequently acquires a further right (an “additional debt”) to a payment, or transfer of assets, in connection with the payment mentioned in paragraph 2(3)(a) or (as the case may be) the transfer mentioned in paragraph 2(3)(b), an amount equal to the value of the additional debt.
(3)For the purposes of sub-paragraph (2)—
(a)where the acquired debt is a right to payment of an amount, the “value” of the debt is that amount,
(b)where the additional debt is a right to payment of an amount, the “value” of the debt is that amount, but is nil if the additional debt accrued to P by the capitalisation of interest on the acquired debt or another additional debt, and
(c)where the acquired debt or additional debt is a right to a transfer of assets, the “value” of the debt is an amount equal to—
(i)the market value of the assets at the time the right is acquired (or the value of the right at that time if the assets are non-fungible and not in existence at that time), or
(ii)if higher, the cost of the assets at that time.
(4)In sub-paragraph (1) “repayment amount”, in relation to a quasi-loan, means the total of—
(a)the amount (if any) by which the initial debt amount has been reduced (by way of repayment) before 17 March 2016,
(b)payments in money (if any) made by the relevant person on or after 17 March 2016 by way of repayment of the initial debt amount, and
(c)if the acquired debt or an additional debt is a right to a transfer of assets, and the assets have been transferred, an amount equal to the market value of the assets at the time of the transfer.
12(1)A payment or transfer is to be disregarded for the purposes of paragraph 11(4)(b) or (c) if—
(a)there is any connection (direct or indirect) between the payment or transfer and a tax avoidance arrangement (other than the arrangement under which the quasi-loan was made), or
(b)the payment or the asset transferred, or a sum or asset directly or indirectly representing the payment or asset, is the subject of a relevant step (as defined in section 554A(2) of ITEPA 2003) that is taken—
(i)after the payment is made or the asset transferred, but
(ii)before the end of 5 April 2019.
(2)But a payment or transfer is not to be disregarded under sub-paragraph (1)(b) if, by the end of 5 April 2019, each relevant tax liability has been paid in full.
(3)For the purposes of this paragraph, each of the following is a “relevant tax liability”—
(a)any liability for income tax arising by virtue of the application of Chapter 2 by reason of the relevant step mentioned in sub-paragraph (1)(b), and
(b)where section 554Z6 of ITEPA 2003 (overlap with certain earnings) applies because that relevant step gives rise to relevant earnings for the purposes of that section, any liability for income tax in respect of those relevant earnings.
(4)Sub-paragraph (5) applies if a payment is disregarded under sub-paragraph (1)(b).
(5)The value of the relevant step treated as taken by paragraph 1 is not reduced under section 554Z5(3) of ITEPA 2003 (overlap with money or asset subject to earlier tax liability) by the amount of the sum, or the value of the asset, which is the subject of the relevant step mentioned in sub-paragraph (1)(b) unless the payment condition is met by reason of section 554Z5(4)(a) and (b)(ii) being met.
13(1)This paragraph applies where—
(a)a person (“P”) has made a quasi-loan to a relevant person,
(b)the quasi-loan was made on or after 6 April 1999, and
(c)before the end of 5 April 2019, A or B acquires (whether or not for consideration) a right to the payment or transfer of assets mentioned in paragraph 2(2)(a).
(2)The amount equal to the value of the right acquired by A or B is to be treated—
(a)for the purposes of paragraph 1(1) as an amount, of the quasi-loan made by P to the relevant person, that is outstanding immediately before the end of 5 April 2019;
(b)for the purposes of paragraph 1(4) and section 554Z3(1) of ITEPA 2003, as an amount of the quasi-loan that is outstanding at the time P is treated as taking the relevant step under paragraph 1(1).
(3)For the purposes of sub-paragraph (2)—
(a)where the right acquired by A or B is a right to payment of an amount, the “value” of the right is that amount;
(b)where the right acquired by A or B is a right to a transfer of assets, the “value” of the right is an amount equal to—
(i)the market value of the assets at the time the right is acquired (or the value of the right at that time if the assets are non-fungible and not in existence at that time), or
(ii)if higher, the cost of the assets at that time.
(4)Where a loan or a quasi-loan made by P to a relevant person is replaced, directly or indirectly, by a quasi-loan or another quasi-loan (the “replacement quasi-loan”), references in sub-paragraphs (1) and (2) to the quasi-loan are references to the replacement quasi-loan.
14(1)Paragraphs 15 to 18 apply where P makes a quasi-loan to a relevant person by reason of acquiring a right to a payment in a particular currency (the “quasi-loan currency”).
(2)For the purposes of paragraphs 15 to 18, the value of an amount in a particular currency is to be determined by reference to an appropriate spot rate of exchange.
15(1)This paragraph applies in relation to the quasi-loan if the quasi-loan currency is a currency other than sterling.
(2)But this paragraph does not apply if paragraph 18 applies in relation to the quasi-loan.
(3)The amount of the quasi-loan that is outstanding, at the time P is treated as taking the relevant step, is to be calculated in sterling as follows—
Step 1
Calculate, in the quasi-loan currency, the amount that is outstanding at that time.
Step 2
Take the value in sterling, at that time, of that amount.
(4)See paragraph 16 for provision about repayments made in a currency other than the quasi-loan currency.
16(1)This paragraph applies in relation to the quasi-loan if—
(a)payments in money are made by way of repayment of the initial debt amount, and
(b)some or all of the payments are made in a currency other than the quasi-loan currency.
(2)But this paragraph does not apply if paragraph 18 applies in relation to the quasi-loan.
(3)For the purposes of calculating the repayment amount in relation to the quasi-loan, the amount of each of the payments referred to in sub-paragraph (1)(b) is an amount equal to its value in the quasi-loan currency on the date it is made.
17(1)Paragraph 18 applies in relation to the quasi-loan if—
(a)the quasi-loan currency is a currency other than sterling, and
(b)it is reasonable to suppose that the main reason, or one of the main reasons, for the quasi-loan being made in that currency is that the quasi-loan currency is expected to depreciate during the quasi-loan period.
(2)The “quasi-loan period”, in relation to a quasi-loan, is the period—
(a)beginning at the time the quasi-loan is made, and
(b)ending with the time by which, under the terms of the quasi-loan, the whole of the quasi-loan is to be repaid.
18(1)Where this paragraph applies in relation to the quasi-loan—
(a)paragraphs 15 and 16 do not apply in relation to the quasi-loan, and
(b)sub-paragraphs (2) to (5) apply for the purposes of calculating the amount of the quasi-loan that is outstanding at the time P is treated as taking the relevant step.
(2)The initial debt amount, in relation to the quasi-loan, is an amount equal to the total of—
(a)the value in sterling, at the reference date, of the acquired debt, and
(b)the value in sterling, at the reference date, of any additional debt.
(3)The “reference date”—
(a)in relation to a right within sub-paragraph (2)(a), means the date on which P acquires it, and
(b)in relation to a right within sub-paragraph (2)(b), means the date on which P acquires it.
(4)The repayment amount, in relation to the quasi-loan, is an amount equal to the total of—
(a)the amount of the initial debt amount that has been repaid in sterling, and
(b)where payments are made, in a currency other than sterling, by way of repayment of the initial debt amount, the amount equal to the sterling value of the payments.
(5)The “sterling value” of a payment is its value in sterling on the date it is made.
19(1)A loan is an “approved fixed term loan” on 5 April 2019 if, at any time on that day, it is a qualifying loan which has been approved by an officer of Revenue and Customs in accordance with paragraph 20.
(2)A loan is a “qualifying loan” if—
(a)the loan was made before 9 December 2010,
(b)the term of the loan cannot exceed 10 years, and
(c)it is not an excluded loan under sub-paragraph (3).
(3)A loan is an excluded loan if, at any time after the loan was made—
(a)the loan has been replaced, directly or indirectly, by another loan, or
(b)the terms of the loan have been altered so as—
(i)to meet the condition in sub-paragraph (2)(b), or
(ii)to postpone the date by which, under the terms of the loan, the whole of the loan must be repaid.