When are parties connected under the loan relationship rules?

There are special rules governing the tax treatment of loans between “connected persons”.  But how are connected persons defined for these purposes and what implications does this have particularly on the wavier of such balances? Anthony Newgrosh considers this for Tax Journal’s Ask an Expert column.



In the straightforward scenario whereby Mr A and Mr B each own 50% of X Ltd and Y Ltd respectively with no tie-breaker rights, are the two companies deemed to be connected under the loan relationship provisions?


Tax practitioners will of course be aware that there are various definitions of what we mean by ‘connected’ for tax purposes. CTA 2009 s 466 states that under the loan relationship rules, two companies are connected if one ‘controls’ the other or they are under the control of the same person. Section 472 then tells us that control is defined as the power of a person to secure that the affairs of the company are conducted in accordance with their wishes by reference to voting power, the holding of shares or rights conferred by the articles of association or similar.

There are two important points to note from the above. Firstly, (since amendments introduced in FA 2002) it is only companies that can be connected with each other for these purposes, ie an individual is never deemed to be connected with a company…


The full article is available as a pdf or via the Tax Journal website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

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While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


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