Taxes Consolidation Act 1997 section 439

Effect of release, etc of debt in respect of loan under section 438

Section 439 sets out the tax treatment of a participator where a close company writes off or releases a loan that was subject to the provisions of section 438.

• Where a close company writes off or releases all or part of a loan made to a participator, the amount written off is grossed up at the standard rate and treated as income of the participator in the year of write-off, chargeable to tax under Case IV of Schedule D.
• A non-refundable tax credit is given for the notional income tax deducted from the grossed-up amount; however, the credit cannot exceed the actual income tax charged on the income, and the notional tax cannot be used to offset the participator's obligation to account for tax on annual payments.
• Where the income as grossed up is charged partly at less than the standard rate, the tax credit in respect of that portion is restricted to the actual tax charged; where charged at standard rate or higher rate, the credit equals tax at the standard rate on the amount so charged.
• Special rules apply where the loan was made to a person who has since died or to trustees of a trust that has ended: the deemed income is assessed on the personal representative or beneficiary, as applicable, and where the estate is under administration the income may be chargeable at the higher rate.