Do you pay tax on loan notes?

The tax treatment of loan notes depends upon whether they are structured as qualifying corporate bonds (QCBs) or non-qualifying corporate bonds (non-QCBs). QCBs are exempt assets for capital gains tax purposes which means that the gains arising on sale are not taxable and losses are not allowable.

Are QCBs exempt from CGT?

QCBs are exempt from Capital Gains Tax (CGT). Under special rules for reorganisations when shares are sold in exchange for QCBs, a capital gain is calculated as if it is chargeable at the time of the exchange. This will mean paying CGT before the QCB is redeemed.

What qualifies as a QCB?

Debt securities that are exempt from tax on chargeable gains so that their disposal does not give rise to any chargeable gain or allowable loss for the purposes of capital gains tax, other than any chargeable gain that was held over on acquisition of the QCBs in exchange for shares.

Are loan notes chargeable assets?

However, loan notes will usually be QCBs, which are not chargeable assets themselves, and so the part of the gain on sale of the shares deferred by the loan notes falls into charge as and when the loan notes are disposed of.

Are loan notes guaranteed?

Throughout the term of the loan, the Loan Notes are secured by a charge over the assets of the company, which is governed by a Security Trustee. Please note that this DOES NOT mean that your investment is safe and DOES NOT guarantee repayment of your capital.

Do corporate bonds pay CGT?

There is, however, a silver lining. All government bonds, or ‘gilts’, and most sterling bonds are completely free from capital gains tax. This means that if you buy or sell a bond second hand on the London Stock Exchange, you will not have to pay any capital gains tax if you make a profit.

What is Qcbs in procurement?

“Quality – and Cost-Based Selection” (QCBS): most common method for selecting consultants, based on two-step combined technical and financial evaluation, which means that a contract is granted to that firm whose Bid has received the highest combined score in the result of evaluation of its technical and financial …

What is accrued income scheme?

The accrued income scheme was originally introduced to counteract a practice known as bondwashing – converting income into capital gains by disposing of securities when the price obtained reflects a significant element of accrued interest.

Can loan notes be sold?

Loan notes can be transferred if the terms and conditions of issue permit it, but otherwise there is no entitlement to do so. The noteholders will be issued with loan note certificates evidencing the loan notes they hold and the certificate will also set out some of the key provisions relating to the money lent.

Why do companies issue loan notes?

Vendor loan notes are typically issued by the buyer of company shares to the seller (or sellers) of those shares as consideration for the share sale. The loan notes represent the element of the purchase price to be paid for the shares that the seller has agreed to defer.

How are loan notes taxed in the UK?

British tax law treats a loan note as a qualifying corporate bond (QCB) or as a ‘non-qualifying corporate bond’ (non-QCB). QCBs are exempt from Capital Gains Tax while non QCB’s incur CGT, and losses are allowable.

Can a loan note be a qualifying bond?

Loan notes can be structured as either a qualifying or a non-qualifying corporate bond. The details of how this is defined is laid out in the Taxation of Chargeable Gains Act 1992, Section 117, Essentially, it is the characteristics of both the security and the underlying debt which define whether a loan note becomes qualified or not.

How are loan notes classified by the taxman?

One of these is to receive loan notes from the acquiring company. A loan note is essentially a debt due from a company. However in tax terms matters aren’t so straightforward. The taxman classes loan notes as either Qualifying Corporate Bonds (‘QCB’s’) or Non-Qualifying Corporate Bonds (‘Non QCB’s).

Can a loan note be used for tax deferral?

But for cases where shares don’t qualify for full business asset taper relief, alternatives could be considered. One of these is to receive loan notes from the acquiring company. A loan note is essentially a debt due from a company. However in tax terms matters aren’t so straightforward.