Corporation Tax Act 2010 section 769

Deemed loan relationship

Section 769 explains how a type 3 finance arrangement involving a partnership is treated as a loan relationship for corporation tax purposes, so that the loan relationship rules apply to the advance and any associated finance charges.

• Where a type 3 finance arrangement exists and a relevant partnership member is a company within the charge to corporation tax, the advance is treated as a money debt owed by the partnership and the arrangement is treated as a money-lending transaction giving rise to that debt.
• Any amount recorded in the partnership's accounts (or in the accounts of any relevant member) as a finance charge on the advance, in accordance with generally accepted accounting practice, is treated as interest payable by the partnership under the transaction.
• To determine when this deemed interest is paid, the periodic payments under the arrangement are split into capital repayment elements and interest elements, and the deemed interest is treated as paid at the times those interest elements are paid.
• A relevant member is any person who was a member of the partnership immediately before the relevant change occurred and who is not the lender.