Autumn Statement 2014: Repeal of late-paid loan interest rules

The loan relationship rules in Chapter 8 Part 5 CTA 2009, contain anti-avoidance measures restricting relief on late interest payable on some loans between connected parties, so that relief is given when interest is paid rather than when it is accrued. Similar rules apply to discounts on deeply discounted securities in Chapter 12. In 2009, the scope of these rules was restricted to interest payable to connected tax haven companies. Some companies use the late interest rules to manipulate the emergence of tax losses and therefore the government now wishes to remove it.

This anti-avoidance rule will now be repealed in respect of new loans entered into on or after 3 December 2014. For loans entered into before 3 December 2014, the repeals will have effect in respect of interest accruing or discounts arising on or after 1 January 2016, unless material changes are made to the loan between 3 December 2014 and 31 December 2015 in which case the repeal will be effective from the date of the change.

This repeal forms part of the government’s intention to modernise the taxation of corporate debt and derivative contracts and is aimed at removing rules which have limited scope and are perceived as being counter-productive.