Income Tax Act 2007 section 809FZV

"Loan to own" investments

Section 809FZV explains how "loan to own" investment strategies are treated for tax purposes, where an investment scheme acquires impaired debt at a discount in order to gain ownership of the underlying assets.

• Where an investment scheme buys debt that is uncollectable or impaired at a discount, intending to acquire ownership of the debtor's assets or assets secured against the debt, the debt and the assets are treated as a single investment.
• The fund must acquire ownership of the relevant assets within three months of purchasing the debt for this treatment to apply.
• The value of the combined single investment is the amount actually paid for the debt, not the face value of the debt or the market value of the assets.
• A "security interest" for these purposes means any interest or right (other than a rentcharge) held to secure payment of money or performance of an obligation.