PM259340 - Anti-avoidance: combined loan facilities

ITTOIA/S863G

This section looks at the situation where the Bank does not view the loan to the individual in isolation. In effect the Bank is prepared to grant a facility to the LLP and its members.

The TAAR will apply if the LLP has borrowed up to its facility limit and a condition of the loan to the individual member is that the contribution is used to repay a portion of the drawn facility so that the overall lending by the Bank is not increased.

The TAAR will apply if the firm has not yet borrowed up to the facility limit, but the firm’s facility limit is required to be reduced as a consequence of the loan to the individual.

Example

This example looks at where the loan to the member affects the loan available to the LLP.

R has been an employee of the FED LLP. She has reached that point in her career where she is offered membership.

In order to become a member, R needs to invest in the LLP. She has some capital of her own, and the LLP arranges with the Bank for her to have a normal commercial loan to cover the balance.

However, the Bank facility covers both the LLP and its members. The result of the loan to R is a reduction in the amount the LLP can borrow.

In these circumstances the TAAR is triggered as all that has happened is that a part of the loan facility of the LLP has been moved to the P.