What this post is. A reference-quality explainer of the loan-relationships regime in CTA 2009 Part 5 — the corporation-tax regime that applies to every bond, gilt, deposit and cash balance a UK company holds. It covers the regime’s architecture, what falls inside it, how credits and debits are computed and why the s.464 priority means a company-held bond or gilt never produces a chargeable gain, even on a sale at a profit.

Every bond, gilt, term deposit and cash balance a UK company holds is taxed under one regime: loan relationships, in Part 5 of the Corporation Tax Act 2009. Its defining feature is that it follows the accounts — the taxable credit or debit for a period is, as a starting point, the income or loss recognised in the company’s profit and loss account for that instrument. For an investment company every such amount is non-trading. And because a statutory priority rule (s.464) makes this regime exclusive, a company-held bond or gilt never produces a chargeable gain — even a profit on selling a gilt before maturity is loan-relationship income, not a capital gain.

In brief:

  • Every bond, gilt, deposit and cash balance a UK company holds sits in the loan-relationships regime (CTA 2009 Part 5) — the income-character regime for company-held debt.
  • The regime “follows the accounts”: the taxable credit or debit for a period is, as a starting point, the amount recognised in profit or loss under the company’s accounting framework (s.306A(1)/s.307).
  • For an investment company every loan-relationship credit and debit is non-trading — the period total is a non-trading profit or, less often, a non-trading deficit.
  • The s.464 priority makes Part 5 the only regime for a company-held bond or gilt — there is no s.104 pool, no share-matching, no chargeable gain, even on a sale before maturity at a profit.
  • This is why reading a broker statement matters: a “gain on a gilt” is interest-character loan-relationship income, not a capital gain.

The architecture: “follow the accounts”

The loan-relationships regime is the corporation-tax code for a company in its capacity as a creditor or debtor of a money debt. For investment companies, what matters is the creditor side: every bond, gilt, term deposit or cash balance the company holds is a money debt the company is owed.

The regime’s defining structural feature — follow the accounts — is stated in CTA 2009 s.307(1): “this Part operates by reference to the accounts of companies and amounts recognised for accounting purposes.” The general rule in s.307(2) directs that credits and debits are those recognised in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice in respect of the matters set out in s.306A(1) — interest, profits and losses on the relationships and related transactions, and expenses of those relationships. Section 306A was inserted by Finance (No.2) Act 2015 and is the current operative provision; the pre-2016 structure in which “s.307 alone” carried this general rule was superseded by that Act and should not be cited as the live rule.

The practical consequence is significant: the corporation-tax credit or debit for a period is, as a starting point, the accounting income or expense the company has recognised for that instrument under its accounting framework — whether that is FRS 102’s effective interest method, FRS 102’s fair-value-through-profit-or-loss treatment, or FRS 105’s contractual-rate approach. The tax engine does not compute a separate “tax interest” figure from first principles; it takes the accounting number. Section 313 specifies the permitted bases of accounting — amortised cost and fair value accounting — and the choice between them follows the company’s accounting framework, not a tax election.

This is also why the loan-relationships regime is the named exception to the fair-value/tax divergence that investment companies otherwise carry: unlike chargeable-gains assets (where FRS 102 wants fair-value-through-profit-or-loss but corporation tax waits for actual disposal), loan-relationship assets have their fair-value movements taxed as they arise where the instrument is held at fair value. The accounting-tax divergence on bonds is smaller, and structured differently, than on equities. That divergence is the subject of a separate piece on how the accounts and the corporation-tax computation diverge — and where loan relationships sit as the exception that follows the accounts.

What is a loan relationship?

A company has a loan relationship — the regime’s unit of analysis, meaning a money debt arising from a transaction for the lending of money in which the company is creditor or debtor — if two conditions are satisfied: there must be a money debt (a debt to be settled by the payment of money), and that debt must arise from a transaction for the lending of money (CTA 2009 s.302). HMRC’s Corporate Finance Manual indexes the definitional material at CFM33010.

For the instruments an investment company holds, the classification is mechanical and the outcome is fixed:

InstrumentLoan relationship?
Corporate bond (held as investment)Yes — creditor relationship
Gilt (UK government security)Yes — creditor relationship
Term deposit / notice accountYes — creditor relationship
Bank current account / broker cashYes — creditor relationship
Listed equity / ETF (equity-only)No — chargeable-gains regime

The boundary that matters most: equities are never loan relationships; bonds, gilts and cash deposits always are. The two regimes do not overlap for ordinary investment-company holdings. (The funds case is more complex — some fund distributions are deemed to be interest under the bond-fund rule — but that is outside this piece’s scope.)

Trading or non-trading?

CTA 2009 Part 5 Chapter 1 distinguishes loan relationships entered into for the purposes of a trade (debits and credits taken into account in computing trade profits) from all others. For a Family Investment Company, a HoldCo, an investment SPV or a trading company’s surplus-cash portfolio, bonds, gilts and cash are held as investments, not as part of a trade. Every loan-relationship credit and debit such an entity records is therefore non-trading.

Section 299 imposes the charge on non-trading profits; s.301 computes the net figure for the period — aggregate non-trading credits minus aggregate non-trading debits. An excess of credits is a non-trading loan-relationship profit (taxable under s.299). An excess of debits is a non-trading loan-relationship deficit (NTLRD) — the terminology used throughout the CT-ready schedule.

For a company with a diversified investment portfolio producing positive interest income, the result each period is typically an NTLR profit. An NTLR deficit arises less often — it can result from a year dominated by FX losses on foreign-currency monetary items or from impairment write-downs on a distressed holding.

What goes into the NTLR total?

For a creditor holding a bond or gilt, the amounts the regime brings into account — all following the accounts — are:

1. Interest income. Recognised under the company’s accounting framework. Under FRS 102’s effective interest method this is the EIM interest amount each period (not the cash coupon, which may differ because the instrument was bought at a discount or premium); under FRS 105’s contractual-rate approach it is the coupon as it accrues each period. Either way, it is an NTLR credit.

2. Discount or premium on a bond. Under FRS 102 the discount or premium accretes into interest income via the effective interest method over the instrument’s life; under FRS 105 it crystallises as a profit or loss on redemption or disposal. In both cases it is an NTLR credit or debit — it is not a chargeable-gains item. This is a direct consequence of the s.464 priority (below) and applies even under FRS 105, where the accounts show a “gain on disposal” on redemption of a discount bond: that gain is an LR credit, not a chargeable gain, by operation of law.

3. Fair-value movements. Where a bond is measured at fair value through profit or loss under FRS 102 (typically a non-basic instrument or one the entity has designated to FVTPL), the period change in fair value recognised in profit or loss is itself the NTLR credit or debit for that period. The regime follows the accounts, and the accounts carry the entire mark-to-market movement through profit or loss.

4. Exchange gains and losses on a foreign-currency bond or deposit. A foreign-currency bond, term deposit or cash balance is a monetary item. Under FRS 102 (para 30.9(a)/30.10) and FRS 105 (para 25.5(a)) such items are retranslated at the closing rate each reporting date. CTA 2009 s.328 provides that exchange gains and losses arising from a company’s loan relationships are within the s.306A(1) amounts and are brought into account as NTLR credits and debits. FX on a monetary debt item is therefore a non-trading loan-relationship credit or debit each period — it is not a chargeable-gains matter. The contrast with a foreign-currency equity (a non-monetary item, where the FX move bundles into the eventual chargeable gain) is the monetary/non-monetary fork discussed in the FX in a UK investment company post.

5. Impairment losses and reversals. An impairment of an amortised-cost bond recognised in profit or loss is an NTLR debit; a reversal is an NTLR credit. Following the accounts.

6. Profits and losses on disposal before maturity. A profit or loss on selling a bond or gilt before it matures — proceeds versus carrying amount, with the accrued interest element stripped out to interest income — is an NTLR credit or debit in the period of disposal. It is not a chargeable gain. This is the s.464 priority at work, and it is the point the following section addresses directly.

The s.464 priority: why there is no chargeable gain on a gilt

The single most important characterisation point for a company holding bonds or gilts is that the loan-relationships regime is exclusive. CTA 2009 s.464(1) — the s.464 priority, meaning the rule that makes Part 5 the sole regime for any matter the regime covers — provides that the amounts brought into account under Part 5 in respect of any matter “are the only amounts which may be brought into account for corporation tax purposes in respect of it.”

For a company-held bond or gilt the “matter” is the entire economic return: the coupon, the accretion of any discount or premium and any price movement on a sale before maturity. All of that sits within Part 5. Section 464 therefore closes off the chargeable-gains regime completely for these instruments.

The s.464 priority works together with two TCGA provisions:

  • TCGA 1992 s.117(A1) provides that, for corporation tax purposes, a “qualifying corporate bond” — or QCB, meaning for CT purposes any asset representing a loan relationship of a company — includes almost every company-held corporate bond. The corporation-tax limb in s.117(A1) is far broader than the general s.117(1) definition (which requires sterling denomination and other conditions): because holding a corporate bond is the loan relationship, almost every company-held corporate bond is a QCB for CT, including foreign-currency bonds that would fail the sterling test.
  • TCGA 1992 s.115(1) exempts gains and losses on disposals of gilts (s.115(1)(a)) and QCBs (s.115(1)(b)) from chargeable gains. For a company holding an investment-grade corporate bond or a gilt, this exemption runs in parallel with the s.464 priority and reinforces the same outcome: the chargeable-gains regime has nothing to bite on.

The practical consequences for the accounting engine are direct:

  • The s.104 pool engine is not run for bonds or gilts. There is no chargeable-gains matching order or s.104 pool for these instruments.
  • A disposal before maturity produces an NTLR credit or debit in the period of disposal, not a chargeable gain. The CT-ready schedule presents bond and gilt disposals in the NTLR total, not in the chargeable-gains total.
  • This is why a broker statement that shows a “gain on gilt disposal” does not generate a capital-gains entry. The gain is interest-character income.

Gilts specifically

“Gilt-edged securities” has a single statutory definition used by both regimes. TCGA 1992 Schedule 9 paragraph 1 defines them as the securities specified in Part II of Schedule 9, plus sterling National Loans Act 1968 s.12 stock issued after 15 April 1969 specified by Treasury order — gilt-edged security, in short, meaning a UK government obligation that meets the statutory gilt-edged definition. CTA 2009 s.476(1) adopts that same definition for the loan-relationships Part.

For a company holding a conventional gilt, the treatment is identical to a conventional sterling corporate bond: the gilt is an asset representing a loan relationship, s.464 makes Part 5 the exclusive CT regime, and the entire return — coupon, any discount or premium, and any price movement — is an NTLR credit or debit following the accounts (HMRC CFM37110). There is no s.104 pool, no chargeable gain.

The gilt-edged flag matters for two special rules that apply only to gilts:

  • Index-linked gilts are subject to CTA 2009 ss.399–400, which require fair-value accounting for the Part 5 amounts and adjust the carrying value for movements in the relevant prices index — removing the inflation element from the taxable amounts so that only the real return is taxed. HMRC CFM37130 confirms the effect.
  • Gilt strips (the separated right to an individual interest payment or to the principal) are subject to CTA 2009 ss.401–403, under which stripping or reconstitution triggers a deemed redemption at market value and the strips are acquired for apportioned market-value amounts.

These special rules are noted here as existing; the mechanics are not in scope for this piece.

Non-trading deficits and deficit relief

When a period produces an excess of NTLR debits over NTLR credits, the result is a non-trading loan-relationship deficit (NTLRD) rather than a profit. Computing the period NTLRD figure — the sum of the LR credits and debits the accounts produce — is within Portive’s scope; the deficit is a line in the CT-ready schedule.

Deficit relief — meaning the statutory routes available under CTA 2009 Chapter 16A by which a company may claim to use that deficit against profits — exists as a set of options. Under Chapter 16A (ss.463A–463I), which is the operative code for accounting periods beginning on or after 1 April 2017, the routes a company may claim are:

  • Setting the deficit against total profits of the same period (s.463B/s.463D), on a claim;
  • Carrying it back against earlier-period profits (s.463E/s.463F), within the permitted window, on a claim;
  • Carrying it forward under s.463G against total profits of subsequent periods, subject to the CTA 2010 Part 7ZA carried-forward-loss restriction (which limits the offset to a £5 million deductions allowance plus 50% of profits above that threshold).

The earlier Chapter 16 (ss.456–463) remains in force only for accounting periods before 1 April 2017 and for charities; it is not the operative code for any period a Portive entity will compute. Chapter 16A is the live authority.

Choosing and applying a deficit-relief route is a CT600 filing election. It is outside the scope of what Portive computes. The CT-ready schedule presents the period NTLRD figure, notes that Chapter 16A relief options are available and carries any brought-forward balance the accountant supplies — it does not select or optimise the claim, and it does not recommend a route between the options above.

Why this matters when reading a broker statement

The practical payoff of understanding the regime is this: a broker statement for a company holding bonds and gilts will often describe events in language drawn from the chargeable-gains world. “Gain on disposal.” “Capital gain.” “Profit on sale.” For listed equities, that language maps onto a real chargeable-gains computation and the s.104 pool. For bonds and gilts it does not — and treating it as if it did would misclassify income as capital.

Every amount on the bond/gilt side of a broker statement — coupon income, discount accretion, gain on a pre-maturity sale, even a gilt “price gain” — is an NTLR credit. It is interest-character income, taxed as the accounts recognise it, through the loan-relationships regime. The s.464 priority makes this a rule of law, not a planning choice.

This is also where Portive’s engine makes a difference: it reads the broker statement, identifies each instrument as sitting in loan relationships or chargeable gains, applies the correct regime and posts the right journal lines to Xero. The bond/gilt entries land in the NTLR lines; the equity disposals land in the chargeable-gains computation. The two streams do not cross.

Sources

Legislation

  • CTA 2009 Part 5: s.299–301 (charge on non-trading profits; deficit computation), s.302/s.303 (loan-relationship definition; money debt), s.306A (matters to be brought into account; inserted by Finance (No.2) Act 2015), s.307 (general rule; “follow the accounts”), s.313 (basis of accounting: amortised cost and fair value), s.328 (exchange gains and losses), s.464 (priority of Part 5), s.476(1) (meaning of gilt-edged for Part 5 purposes), ss.399–400 (index-linked gilts), ss.401–403 (gilt strips)
  • CTA 2009 Chapter 16A (ss.463A–463I): non-trading deficit relief for periods from 1 April 2017; inserted by Finance (No.2) Act 2017, Schedule 4
  • TCGA 1992 s.115(1): exemption from chargeable gains for gilts and QCBs
  • TCGA 1992 s.117(A1): qualifying corporate bond definition for corporation tax — any asset representing a loan relationship of a company
  • TCGA 1992 Schedule 9 paragraph 1: gilt-edged securities definition
  • CTA 2010 Part 7ZA: carried-forward-loss restriction (the £5 million deductions allowance)
  • Finance (No.2) Act 2015: restructured the bringing-into-account machinery, inserting s.306A and superseding the pre-2016 “s.307 alone” framing
  • ITA 2007 Part 12: Accrued Income Scheme (income tax; does not apply to companies — the company route is loan relationships: SAIM2450)

HMRC manuals

  • CFM33010: loan relationships — core rules overview and definitional index
  • CFM32040: non-trading deficits and deficit relief
  • CFM37110: gilt-edged securities — overview of the loan-relationships treatment
  • CFM37130: taxing indexed gilts — the s.400 inflation-exclusion mechanism
  • SAIM2450: companies taxed under loan relationships, not the Accrued Income Scheme

Last reviewed: 2026-05-20.