Loan Relationship Consultation

HMRC have now published the summary of responses to the Modernising the taxation of corporate debt and derivative contracts consultation document.

LR Condoc Responses

In general the document does exactly what it says on the tin: it summarizes the responses to the original consultation document and commits to further consultation with a view to legislation in Finance Act 2015.

A welcome development is that HMRC have backed down from the initial proposals for bond funds.  The key paragraph is 13.12 reproduced below.

"In the light of this, HMRC has been exploring with stakeholders, and continues

to do so, a less radical approach, which will retain the bond fund rules, while addressing both the tax avoidance issues and some of the difficulties with the operation of the test for identifying a bond fund. As set out in the consultation document, it is intended that changes in this area will be included in Finance Bill 2014."

 

The clauses to be included in Finance Act 2014 are (scheduled) to be released in January. 

 

It probably shows a lack of imagination on my part but I'm at a loss to see how bond funds could be used in a tax avoidance scheme.  I wonder if an anti avoidance provision is really needed in this area?  If avoidance was a clear and present danger then I suspect we would have had legislation already rather than waiting for the Finance Act.

On corporate streaming the position is less clear cut.  The final paragraph on this is as follows.

"The Government notes the issues raised and intends to explore further with

stakeholders implications arising from the identified options before determining

the way forward. It is expected that any changes in this area can be implemented by way of secondary legislation under existing regulation-making powers conferred on HM Treasury"

 

So really a question of watch this space but I think HMRC may be moving away from outright abolition of streaming.  

 

One pet peeve that I have is that HMRC keep referring to the corporate streaming provisions as anti avoidance legislation.  But this simply isn't the case, if it was anti avoidance legislation then it would be worded as such.  Of course the key consideration in HMRC's (collective) mind when the legislation was instigated was the need to prevent investment via an AIF turning taxable income into FII but that's not the same thing (parliament passes legislation not HMRC).  Corporate streaming provides continuity of treatment to the tax system and is beneficial both for tax payers and HMRC.

 

Pet peeve aside its good to see HMRC has paid attention to industry representations on the bond fund point and hopefully we are headed in the same direction on streaming.