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Readers’ forum: Treatment of non-QCB loan notes in a discretionary trust.

11 January 2022
Issue: 4823 / Categories: Forum & Feedback
Loan notes

My client settled some non-qualifying corporate bond (QCB) loan notes into a discretionary trust. At that point the accrued income was £100 000 and shortly afterwards the trustees received an interest payment of £110 000. However HMRC has applied the thin capitalisation rules to the interest on these loan notes so that approximately 75% has been disallowed for corporation tax purposes. This meant that on the trust’s tax return £82 500 could be put in as a distribution to be taxed at 38.1%. However doing so would appear to lose £75 000 of accrued income relief (AIR).

My questions are as follows:

  • Do the trustees have to declare the £82 500 as a distribution?
  • If so is the AIR lost?
  • If the trustees can report the £82 500 as interest can they then claim the AIR of £75 000 to leave £7 500 taxed at 45%?
  • For...

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