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Relief for acquired bad debt

This guidance applies to periods of account beginning before 1 January 2005

Under the old rules, the conditions for excluding purchase discount when bad debt was bought and the companies were connected were given in para 6B(6).

»Ê¹ÚÌåÓýapp new creditor company had

• to have acquired its rights to the debt on arm’s length terms from the old creditor
• not be connected to the old creditor

• not have been connected to the debtor for the period

• starting 4 years before, and
• ending 12 months before it acquired the debt.

For para 6B(6), the definition of connection followed FA96/S87. »Ê¹ÚÌåÓýappre was a connection between a company and another person if

• the other person was a company, and one of the companies controlled the other, or
• both were companies under the control of the same person.

Example: previous connection

YT Ltd bought a controlling shareholding in JT Ltd. At the same time, it bought loan stock in JT Ltd from an unconnected bank on 1 January 2003. It paid £50,000 although the redemption amount was £75,000 - JT Ltd was struggling and was unlikely to repay in full.

Between 1 January 1996 and 31 December 2000, YT Ltd and JT Ltd were both 100% subsidiaries of RD plc. Para 6B(6) could not have applied because of the previous connection.

Para 6B(6) could have applied if the connection had ceased before 1 January 1999.