87B Release of debts in certain trades

Summary

This provision, inserted by section 18 of the Finance Act 2013 applies to all individuals engaged in, or deemed to be engaged in, the trade of dealing in or developing land. Where an amount of any debt, which is incurred by the individual to fund the acquisition of land held as trading stock, is released, that amount is treated as a receipt of income in the year of release. Provision is made to ensure that the amount is chargeable even where the trade has ceased before the time of the release.

For the purposes of this section, “release” essentially means any form of debt forgiveness, whether formal or otherwise, including that associated with limited or non-recourse loans and the discharge of debt in the context of bankruptcy or insolvency. Carried forward losses of the trade will be available to reduce or eliminate any tax charge that may arise as a result of this measure. This provision applies to any such debt released on or after 13 February 2013.

Details

(1) “specified debt” means any debt incurred by an individual to finance the purchase or development of land which is trading stock of a “specified trade”;

“specified trade” means a trade of dealing in or developing land or any activity, which is treated as such by virtue of section 640(2)(a) and to which the rules contained in Chapter 1 of Part 22 apply.

(2) If all or part of a specified debt is released (in this context “released” refers to any form of debt forgiveness) by the lender, the amount so released will be treated as a trading receipt of the specified trade in the tax year concerned.

(3) Where the specified trade has ceased prior to the debt being released the amount released will be treated as a post cessation receipt chargeable to income tax under Case IV of Schedule D.

(4) The date on which the specified debt is to be treated as released (in whole or in part) for the purposes of determining the tax year in which the charge to tax will arise will be the earliest of the following:

• the date on which the lender confirms to the borrower that the debt has been released,
• the date on which the lender and borrower first come to an agreement (either formal or informal) that the debt or part of the debt does not have to be repaid,
• in a case where the loan agreement provided for circumstances in which the debt or part of the debt would be released or not collected the date on which the relevant conditions are met (this refers to limited or non-recourse loans),
• in a case involving a discharge from bankruptcy or a discharge from debt under the Person Insolvency Act 2012, the date of discharge.

Relevant Date: Finance Act 2019