On 30 October 2024, new rules were enacted to prevent close company shareholders from avoiding tax when extracting funds through loans. Announced in the Budget Red Book, the measure affects loans to participators within close companies, tightening anti-avoidance rules in the Corporation Tax Act 2010. It aims to close loopholes where companies recycle loans through multiple entities to dodge tax.
This update removes tax avoidance opportunities by aligning the targeted anti-avoidance rule (TAAR) within the loans-to-participators regime with other anti-avoidance measures. Now, the tax will be due if the TAAR applies, regardless of any apparent loan repayment or future repayment made.
The Finance Bill 2024/25 will implement these changes, which include repealing section 464B, modifying section 464D and relocating Chapter 3B to form part of the main rules in Chapter 3. Chapter 3A will then solely contain the TAAR for loans to participators.
The Treasury projects limited additional revenue from these changes – £5m this year, £10m in 2025/26, then £5m annually from 2026/27 – highlighting uncertainties around the tax base size and behavioural impacts. Draft legislation has been published for these updates.
HMRC said: “Where there are tax avoidance arrangements, a more modern TAAR would not allow later relief as here in the case of a return payment.
“We have become aware of arrangements using a group of companies or among associated companies, so that new loans are made and then repaid in a chain such that no s455 charge arises on the increasing amounts extracted.
“The current legislation cannot catch the behaviour.”
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