Corporation Tax Act 2009 section 425

Original holder using fair value accounting

Section 425 provides the rule that applies when a reorganisation involves a loan relationship and the original holder of the shares uses fair value accounting for that loan relationship, replacing the general reorganisation rule in section 424.

• Where the original holder uses fair value accounting for a loan relationship within original shares, this section overrides the standard reorganisation treatment in section 424.
• The disposal amount recognised by the original holder is the fair value of the asset or rights representing the loan relationship at the date of the reorganisation.
• The successor creditor company (the company holding the creditor relationship immediately after the reorganisation) is treated as having acquired the loan relationship asset for consideration equal to that disposal amount.
• The section is subject to disapplication where transparent entities are involved, and the fair value accounting rules from section 423(4) and (5) are applied with references to the original holder in place of the transferor.