UK: Loan-relationship assets exchanged for shares

Transfer or loan relationship assets for shares, UK

The First-tier Tribunal found for HM Revenue & Customs in a case concerning the transfer of loan-relationship assets to a wholly owned Jersey resident subsidiary in exchange for shares. The intended benefit of the transaction was for the profit inherent in the transferred loan relationships would never be taxed. However, the tribunal found that although the non-recognition of a profit in the accounts of the UK transferor company was according to generally accepted accounting practice (GAAP), the UK transferor company was required to recognise a taxable profit equal to the fair value of the transferred assets, because this “fairly represented” a profit from transfers.

Related content

The case is: GDF Suez Teeside Ltd. v. Commissioners for HM Revenue & Customs

KPMG observation

From 2016 onwards, the “fairly represents” language in the rules for loan relationships and derivatives is being repealed, in part because the tax authorities believe the targeted anti-avoidance rules of Finance Bill 2015-16 will be sufficient to counter this type of arrangement.

In a second case, concerning whether obtaining writing-down allowances was the "main object" of overseas leasing transactions involving two leased ships, the First-tier Tribunal concluded that the writing-down allowances were the main object of the transaction, and that the taxpayer was to be denied capital allowances. The case is: Lloyds Bank Leasing (No. 1) Ltd. v. HM Revenue & Customs


Read a September 2015 report [PDF 812 KB] prepared by the KPMG member firm in the UK:  Weekly Tax Matters (4 September 2015)


Other items discussed in the KPMG report concern:

  • Tonnage tax and the training requirement
  • Practical implications of the Anson case for investment managers and funds
  • Indirect tax decisions by tribunals
  • Employment tax and HMRC guidance on employee travel


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