FA 2010 analysis – Connected companies: releases of debt

The background

For the last five years an anti-avoidance provision (CTA 2009 s 361) has applied where one company (purchaser) purchases a creditor relationship from an unconnected third party and another company (borrower) is a party to the corresponding debtor relationship and is connected with the purchaser. In such cases a deemed release will arise to the borrower if the purchase price is less than the value at which the debtor relationship would have been shown in its accounts had an accounting period ended immediately before the date of purchase. There was an exception to this rule which was designed to accommodate cases where a purchaser acquired shares in an unconnected borrower (and as a result became connected with the borrower) together with a creditor relationship in respect of which the borrower was the debtor. However the way in which...