Readers’ forum: Do ‘debt on a security’ rules apply to corporation tax?

A company client invested in £100 000 of loan notes issued by another UK company secured over its assets by a debenture providing fixed and floating charges. The other company is not prospering and the client is considering making an impairment provision against the book cost of the loan notes.

I understand that an impairment provision against a simple loan may give rise to a deductible ‘debit on non-trading loan relationships’ provided making the loan was within the commercial purposes of the company; does the fact that these are loan notes and secured by a charge make any difference?

I recall that there used to be special rules for a ‘debt on a security’ but I am not sure if that applies to corporation tax or only capital gains tax. Readers’ views would be welcome.

Query 20 525 – Polonius.

If the companies are connected...