CheckLists.Tax (beta)
K11. Assignment of a debt
GENERAL
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Distinction between assignment and novation
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- Assignment applies where the same debt asset is transferred from one owner to another (CFM11170).
- Less often, a tripartite agreement may lead to the creation of a new debt asset, albeit on the same terms (CFM11170).
- See Powell v. HMRC [2025] UKFTT 528 (TC) where what looks, in substance, to have been an assignment (same debtor) was executed as an apparent novation (and treated as a novation and, therefore, a release).
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CHARGEABLE GAINS​
- Exemption for original creditor, but not for subsequent owner
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XX
Legislation:
Cases:
HMRC manuals: CG53480
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INCOME TAX​
Shareholders
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- Assignment for less than market value may be distribution
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- Transfer of assets by a company to its members for less than the market value is treated as a distribution (CTA 2010, s.1020).
Legislation: CTA 2010, s.1020;
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Close companies
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- Release or writing off following assignment
- Unlike the corporation tax position (see below), ITTOIA s.415, on its face, only applies if the company liable to s.455 tax releases or writes off the debt (or is deemed to have done so).
Legislation: ITTOIA s.415;
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Settlements legislation
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- Repayment of loan by trustees to assignee may be treated as capital payment to settlor
- Sum paid to third party as a result of assignment of right by settlor is treated as capital sum paid to settlor (ITTOIA s.634(5); CTM61100).
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EMPLOYMENT INCOME
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General earnings
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- Assignment of debt to employee is readily convertible asset subject to PAYE
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- E.g. assignment of trade debts (EIM11923).
Legislation: ITEPA s.702(1)(b)(i).
Cases:
HMRC manuals: EIM11905; EIM11923.
Commentary:
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Benefits code
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- Assuming rights of original lender treated as making a loan
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- Making a loan includes assuming the rights of the person who originally made the loan (ITEPA s.174(4)).
Legislation:
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HMRC manuals: EIM26111;
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- Transfer of rights by employer does not cause loan to cease to be employment-related
- Whether employment related decided at time loan originally made.
Legislation:
Cases:
HMRC manuals: EIM26111;
Commentary:
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Disguised remuneration
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- Relevant step for disguised remuneration purposes
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- Acquiring a debt arising from a loan or a transfer of assets can be a relevant step for Part 7A purposes (ITEPA 2003, s.554C(aa)).
- Acquisition of debt by person liable for the debt is treated as a release (s.554C(3B)).
- Limited exclusion for transfer of employment related loans from one employer to another (s.554OA).
Legislation: ITEPA 2003, s.554C; s.554OA;
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CORPORATION TAX
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- Assignment of debt to close company treat as loan to participator
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- Deemed loan to participator where debt due from participator is assigned to the close company (CTA 2010, s.455(4)).
- HMRC seem to suggest it only applies to assignments for consideration (CTM61535).
- Query what happens in respect of the assignor if it was a close company that has paid s.455 tax.
Legislation: CTA 2010, s.455(4);
Cases:
HMRC manuals: CTM61535; SAIM5200;
Commentary:
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Close companies
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- Query whether assignment can of itself give rise to repayment of s.455 tax
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- "Relief under S458 may or may not be due in the case of an assignment; this will depend on the facts. Has the loan from the close company actually been repaid or is it still outstanding, albeit from a different debtor? How exactly is it that the original debtor no longer owes the money?" (CTM61605)
- Logically, however, the loan/debt is still outstanding following assignment.
Legislation:
Cases:
HMRC manuals: CTM61605;
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- Repayment of s.455 tax where debt is subsequently released/written off by assignee
- CTA 2010, s.458 asks whether "the debt" is released or written off. It does not seem to matter who the debt is owed to at the time of the release or writing off.
Legislation: CTA 2010, s.458;
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CAPITAL GAINS TAX
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Matching trust gains to benefits
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- Assignment of debt by trustees giving rise to capital payment/possible passing on of benefit
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Assignment as capital payment​​
- References to a capital payment include references to the transfer of an asset or conferring any other benefit (s.97).
- Exclusion for benefits chargeable as income/arm's length transactions.
- See i9. Benefits provided by trust.
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Passing on of a benefit
- The onward gift rule applies (see i9. Benefits provided by trust) where (inter alia) the original recipient provides a benefit to the subsequent recipient that includes (all or part) of the original benefit or anything that derives from the original benefit.
- The effect of the onward gift rule is that the onward gift is treated as a capital payment received by the onward gift recipient​​
- If the original recipient receives money (or, perhaps, converts an asset received into money) and lends it to another on favourable terms, part of the benefit has been passed on. (subject to application of the other conditions).
- The same may apply where a debt on favourable terms is owed by a UK resident to trustees who assign the benefit of the debt to a non-UK resident beneficiary, at least where the debt could be called in but is not.
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Legislation: TCGA s.87, s.87HA, s.97.
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VAT
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Output VAT
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- Sale of a debt is exempt, assignment of only equitable interest not a supply
- HMRC distinguish a sale and an assignment.
- Sale of a debt is exempt (VATA Sch 9, Grp 5, Itm 1).
Legislation: VATA Sch 9, Grp 5, Itm 1.
Cases:
HMRC manuals: VATFIN3215;
Commentary:
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Input VAT
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