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U.K. Tax Update

November 02, 2009

Arun Birla, Jiten Tank and David Mallett

Set out below is a snapshot of certain key U.K. tax law developments:

1. Group Companies Taxation: Debt Buy Backs

On 14 October 2009 the Financial Secretary to the Treasury proposed significant changes to the current rules governing how group companies are taxed when they undertake a discounted debt buy back. Whilst these changes are likely to be introduced in 2010, they will impact on and therefore need to be considered in relation to all debt buy backs undertaken from 14 October 2009.


Previously, companies buying back debt at a discount have been taxed on the difference between the amount borrowed and the amount paid for the release of the debt. However, certain exceptions exist; notably the ability of a company affiliated to the debtor to purchase the debt without incurring the related tax charge. This was provisional on:

  • the creditor company being arms length to the purchaser; and

  • the purchasing company not being connected to the debtor any time during the three year period ending twelve months before the purchase.

However, due to this exemption being used beyond its original scope (i.e. to enable company rescues) a new regime is now proposed.

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