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Loans and the unallowable purpose rule

18 September 2023 / Jake Landman , Abigail McGregor
Issue: 4905 / Categories: Comment & Analysis , CTA 2009 , loans , Tax planning , Investigations
137964
Expansive approach

Key points

  • JTI UK was set up to acquire another US business in a commercial acquisition.
  • The aim was to use intra-group interest to obtain corporation tax relief.
  • The Upper Tribunal agreed with HMRC that there was an unallowable purpose.
  • Evidence showed that JTI UK did not have the freedom to choose whether to proceed with the transaction.
  • Upcoming appeals such as BlackRock Holdco 5 may provide further guidance.

The Upper Tribunal (UT) has given further guidance on the proper interpretation of the UK’s rule that prevents deduction of interest for tax purposes where a loan is entered into for an ‘unallowable purpose’ in JTI Acquisitions Company (2011) Ltd v CRC [2023] STC 1459.

The unallowable purpose rule sits within the UK’s loan relationship regime (CTA 2009 s 441 and s 442). Under this targeted anti-avoidance rule a company may not bring into account any debits (being...

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