CFM33270 - Loan relationships: the matters and computational rules: amounts not brought into account: buying imported losses

CTA09/S327(4)

Loss buying

CTA09/327(4) ensures that in an imported loss scenario, the loss is disallowed even if the loan relationship is transferred to another company.

Example

Pirt SA, a non-UK resident company, buys loan stock in an unconnected company on 1 June (Year 1) for £100,000, receiving fixed interest at 5%. By the end of Year 2, the loan stock is worth only £90,000 because of changes in interest rates and the issuing company바카라 사이트™s future prospects. It is assumed that, in applying an amortised cost basis of accounting, the loan stock would not be impaired and would still be carried in its accounts at £100,000.

At the beginning of Year 3, Pirt SA migrates to the UK and sells the loan relationship to a fellow UK group member, Jik Ltd, for £100,000. At the end of Year 4, Jik Ltd sells the stock to an unconnected person for £84,000.

Pirt SA

Year 1

Interest accrued - £5,000

Year 2

  • Interest accrued £5,000
  • Loss on sale to Jik Ltd - minus £10,000

The companies are members of the same group, therefore CTA09/SS344-348 will apply to prevent any loss or profit on transfer (see CFM34000+ for more on intra-group transfers).

Jik Ltd

Year 3

Interest accrued - £5,000

Year 4

  • Interest accrued - £5,000
  • Loss on sale (taking account of the intra-group transfer) - minus £16,000
  • S327 adjustment £10,000

£10,000 (£100,000 less £90,000) of the loss refers to the pre-migration period.