Finance Act 2021

PART 2 Chapter 3 mismatches: relevant debt relief circumstances

2 Part 6A of TIOPA is amended as follows.

3 In section 259CB (hybrid or otherwise impermissible deduction/non-inclusion mismatches and their extent), for subsection (3) substitute—

“(3) So far as the excess arises—

(a) by reason of a relevant debt relief provision, or

(b) in relevant debt relief circumstances,

it is to be taken not to arise by reason of the terms, or any other feature, of the financial instrument (whether or not it would have arisen by reason of the terms, or any other feature, of the financial instrument regardless).”

4 In section 259CC (interpretation of section 259CB), after subsection (3) insert—

“(3A) To determine whether excess arises in “relevant debt relief circumstances” see sections 259NEB to 259NEF.”

5 After section 259NEA insert—

“Relevant debt relief circumstances

259NEB Relevant debt relief circumstances: introductory

(1) This section applies for the purposes of section 259CB(3).

(2) Excess arises in “relevant debt relief circumstances” if (and only if)—

(a) the payment or quasi-payment mentioned in section 259CB(2) comprises the release of a liability to pay an amount under a debtor relationship (within the meaning given by section 302(6) of CTA 2009), and

(b) the circumstances in section 259NEC, 259NED, 259NEE, or 259NEF apply.

(3) For the purposes of those sections references to—

(a) “the relevant release” means the release of liability mentioned in subsection (2)(a),

(b) “loan relationship” is to be construed in accordance with section 302 of CTA 2009,

(c) “amortised cost basis of accounting” is to be construed in accordance with section 313(4) and (4A) of that Act,

(d) “connected companies relationship” is to be construed in accordance with section 348 of that Act, and

(e) “deemed release” and “relevant rights” are to be construed in accordance with section 358(3) to (4A) of that Act.

259NEC Release of debts

(1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

(2) The circumstances in this section are—

(a) the relevant release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of the debtor relationship, and

(b) condition A, B, C, D or E is met.

(3) Condition A is that the release is part of a statutory insolvency arrangement (within the meaning of section 1319 of CTA 2009).

(4) Condition B is that the release is not a release of relevant rights and is—

(a) in consideration of shares forming part of the ordinary share capital of a payee, or

(b) in consideration of any entitlement to such shares.

(5) Condition C is that—

(a) a payee meets one of the insolvency conditions (see subsection (8)), and

(b) the debtor relationship is not a connected companies relationship.

(6) Condition D is that the release is in consequence of the making of a mandatory reduction instrument or a third country instrument or the exercise of a stabilisation power under Part 1 of the Banking Act 2009.

(7) Condition E is that—

(a) the release is neither a deemed release nor a release of relevant rights, and

(b) immediately before the release, it is reasonable to assume that, without the release and any arrangements of which the release forms part, there would be a material risk that at some time within the next 12 months a payee would be unable to pay its debts.

(8) For the purposes of this section a company meets the insolvency conditions if—

(a) it is in insolvent liquidation,

(b) it is in insolvent administration,

(c) it is in insolvent administrative receivership,

(d) an appointment of a provisional liquidator is in force in relation to the company under section 135 of the Insolvency Act 1986 or Article 115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(e) under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a), (b), (c) or (d) exist.

(9) Section 323(A1) of CTA 2009 applies for the interpretation of subsection (7)(b); and the rest of that section applies for the interpretation of subsection (8).

259NED Release of connected companies debts

(1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

(2) The circumstances in this section are—

(a) the relevant release takes place in an accounting period for which—

(i) an amortised cost basis of accounting is used in respect of the debtor relationship, and

(ii) the debtor relationship is a connected companies relationship, and

(b) the release is neither—

(i) a deemed release, nor

(ii) a release of relevant rights.

259NEE Release of connected companies debts during creditor’s insolvency

(1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

(2) The circumstances in this section are—

(a) the relevant release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of the debtor relationship,

(b) condition A, B, C, D or E in section 357 of CTA 2009 is met in relation to the payer,

(c) immediately before the time when any of those conditions was first met the debtor relationship was a connected companies relationship, and

(d) immediately after that time it was not such a relationship.

259NEF Corporate rescue: debt released shortly after connection arises

(1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

(2) The circumstances in this section are—

(a) the relevant release takes place within 60 days of the payer and a payee becoming connected with one another (within the meaning of section 363 of CTA 2009), and

(b) the corporate rescue conditions are met.

(3) The corporate rescue conditions are—

(a) that the payer and the payee became connected as a result of an arm’s length transaction, and

(b) immediately before the payer and the payee became connected it was reasonable to assume that, without the connection and any arrangements of which the connection forms part, there would be a material risk that at some point within the next 12 months the payee would have been unable to pay its debts.

(4) For the purposes of subsection (3)(b), a payee is unable to pay its debts if—

(a) it is unable to pay its debts as they fall due, or

(b) the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.”