CFM95960 - Interest restriction: group-interest: adjusted net group-interest expense: overview

TIOPA10/S413

The adjusted net group-interest expense of a worldwide group for a period of account is the absolute limit that is used for the fixed ratio debt cap as part of the fixed ratio method. It is also used to as the starting point for calculating the qualifying net group-interest expense.

The adjusted net group-interest expense is based on the net group-interest expense of the group for the period, adjusted as follows:

  • The amount is increased by upward adjustments. This is to include certain relevant expense amounts that would otherwise not be included and to exclude certain relevant income amounts that would otherwise be included.
  • The amount is decreased by downward adjustments. This is to include certain relevant income amounts that would otherwise not be included and to exclude certain relevant expense amounts that would otherwise be included.
  • The adjusted net group-interest expense cannot be negative. Where the above calculation produces a negative results, the adjusted net group-interest expense for the group for the period is nil.

Specific adjustments

Adjustments are to be made in respect of the following to align with UK tax rules:

  • To include all amounts of capitalised interest and other financing amounts at the time they are capitalised in an asset or liability.
  • To include amounts in respect of certain equity-accounted instruments.
  • To include certain pre-commencement amounts at the time the trade, or UK property business of a non-UK resident company, commences.
  • To exclude amounts in respect of debt restructuring.
  • To exclude amounts of dividends payable on preference shares that are recognised as a liability.

Elections

The calculation of adjusted net group-interest expense can be modified through the operation of the following elections:

  • Group-EBITDA (Chargeable gains) election
  • Interest allowance (alternative calculation) election
  • Interest allowance (non-consolidated investment) election
  • Interest allowance (consolidated partnerships) election