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Tax consequences on deemed release of impaired debt.
Company A owes £2m to its parent company B during the year ended 30 September 2017.
In September 2017 company C acquired A from B by way of a share purchase agreement. B and C are unconnected companies. C also agrees to take over the debt A owed to B for a consideration of £500 000. A’s books after the acquisition show the full amount of debt of £2m owing to the new creditor C whose books show the purchased debt of £500 000 as owed by A.
Under CTA 2009 s 361 a deemed release of the debt of £1.5m (taking account of the discount) arises on A in the period ended 30 September 2017. However company A will not be taxed on this deemed release during that period if the corporate rescue exemption of CTA 2009 s 361D applies.
Assuming all the...
