Corporation Tax Act 2010 section 946

Rules for determining "L"

Section 946 sets out the detailed rules for calculating "L" — the excess of liabilities over assets retained by a predecessor company when a trade is transferred without a change of ownership, as required by section 945.

• Liabilities that were already apportioned to a successor's trade in a previous transfer under this chapter must be excluded from the calculation of "L".
• Where a creditor has agreed to accept partial settlement of a liability as full settlement, only the agreed reduced amount counts as the transferred liability.
• The predecessor's own capital (share capital, share premium, reserves and relevant loan stock) is normally not treated as a liability, unless it is "recently converted capital" — capital created by converting a genuine liability within the 12 months before the trade transfer.
• Loan stock held by a person who was carrying on a trade of lending money when the liability arose is excluded from the definition of "relevant loan stock" and is therefore treated as an ordinary liability rather than as part of the predecessor's capital.