Budget 2009 - Loan and debt relationships between connected companies
With effect from Budget Day (22 April 2009), companies may release debts owed to them by connected companies (often, those under common ownership) without triggering a tax charge. Until now, a company that was released from a trading debt owed to a connected company would be taxed on this release – but the other company would not benefit from tax relief for granting the release. If the companies are not connected, the existing rules will continue to apply - the company that owes the trading debt will be taxed (unless the release is part of a statutory insolvency arrangement) and the creditor will continue to get tax relief.
For accounting periods beginning on or after 1 April 2009, the rule that only allows a company a tax deduction for interest payable to a connected company outside the loan relationship rules (normally when the lender is not resident in the UK) when it is paid, will be changed. In future, this will remain the case only where the lender is resident in a ‘non-qualifying territory’ (broadly, a tax haven).
Tax deductions for other interest will be granted on an accruals basis (ie they will follow the treatment in the accounts).
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David Mansell is a Corporate Tax Partner at Mercer & Hole.
Date: 22nd April, 2009
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