Loan Note Litmus

The Inland Revenue has announced that it will be reviewing the interaction of taper relief with loan notes. Advisers who work in the field of company purchases and sales will feel heartily relieved. Unfortunately there are no indications as yet of the specific points that will be included in the review. However there is one specific aspect that may well be the result of a drafting oversight but which causes considerable uncertainty to many taxpayers. All statutory references are to the Taxation of Chargeable Gains Act 1992 unless otherwise specified.

A disposal of shares to a company where the consideration takes the form of shares of the purchasing company in circumstances where the provisions of section 135 Taxation of Chargeable Gains Act 1992 are satisfied is one occasion when the qualifying period for taper relief can be preserved. The exchange is deemed by...