Debt Restructuring: Releases

In this article Paul Pritchard, Managing Director of our European Tax Advisory team discusses the key considerations for UK tax treatment of debt restructuring releases.

This is an extract from Tax Journal, first published on May 14, 2021. The whole publication is available at https://www.taxjournal.com/articles/-debt-restructuring-releases.

"The impact of the pandemic may necessitate a financial restructuring of a company’s liabilities. Debt release exemptions may be required to avoid adverse tax consequences. Releases of loan relationships which existed before 1 January 2016 must qualify for an exemption to avoid taxable profits, but for newer debts an exemption is necessary only if the release results in an accounting profit. Where creditors undertake a ‘debt for equity’ swap, then the accounting treatment, the terms attaching to the shares and when the debt came into existence need to be considered. Releases of trade or property business debts follow the loan relationship exemptions, but unpaid management expenses may result in a clawback.

The global pandemic has had an unprecedented impact on businesses. For some, the pandemic has stressed their financial position such that a restructuring is necessary. This may involve reducing debt liabilities through releases, equity injections to pay down debt or easing the debt burden through changes to terms of borrowings."