Following the publication of draft legislation to limit the UK
tax deductions that companies can claim for their interest expenses
(as announced at Budget 2016), the government have announced a
small number of changes which will be reflected in Finance Bill
2017 to avoid certain unintended consequences or impose unnecessary
The changes will address:
Certain unintended restrictions arising from the operation of
the modified debt cap which could prevent the use of carried
forward interest capacity from loss-making years, or years with low
Changes to the treatment of guarantees from related parties,
including the introduction of a rule grandfathering guarantees
granted before 31 March 2017 so that interest on such loans will
not be treated as related party. Certain performance guarantees and
intra-group guarantees in the context of the group ratio will also
be excluded from the rule treating interest on debt guaranteed by
related parties as related party interest.
Public infrastructure exemption: the optional alternative rules
will be amended so that they are easier to apply in practice
– removing the need to compare the level of indebtedness of
qualifying infrastructure companies with that of non-qualifying
group companies, such as those outside the UK. Transitional rules
will apply in the first year to enable businesses time to
restructure, if necessary.
The definition of tax interest will be expanded to include both
income and expenses from dealing in financial instruments as part
of a banking trade
The introduction of special rules for insurers to enable them
to calculate interest on an amortised cost basis, as a practical
alternative to fair value accounting.
Who will be affected?
These amendments will be beneficial to a number of groups
those with losses in some years, including start-ups, which
move into profit;
groups with inter-company guarantees; " banks; and
The changes will be reflected in Finance Bill 2017, when it is
released on 20 March 2017, and will come into force when the
interest restriction legislation takes effect from 1 April
These issues became apparent on review of the draft legislation,
released on 26 January 2017, and have been raised with HMRC and HM
Treasury by a number of stakeholders.
Whilst these issues had been acknowledged by HMRC and HM
Treasury, we welcome the government's formal announcement that
these issues will be addressed. However, the precise drafting of
these rules will need to be reviewed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under current law, where a business subject to corporation tax or income tax reallocates an existing asset into its trading stock, the basic rule is that there is a deemed market value disposal of the asset...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).