Annex 1: Minor Changes in the Law Change 56: Loan relationships: references to connections between a company and another person to be rewritten as applying to connections between two companies: sections 348, 361, 468, 469 and 470. Section 88 of FA 1996
Section 88 of FA 1996 provides exceptions to the connection provision in section 87 of FA 1996.
Section 88(1) provides that a connection between a creditor company and the person standing in the position of debtor in the exempt circumstances set out in section 88 is disregarded for the connection provisions of section 87. Although section 88(5) provides a refinement of that rule for the debtor company if the person standing in the position of a debtor is also a company, it is not clear how the person in subsection (1) who is the debtor could be other than a company, since section 87, as explained above, now only provides connection rules between companies. Section 88(1) and (5) is therefore rewritten as applying to debtor companies only.
Section 88(2) excludes cases where, broadly, loan relationships are treated as trading assets. But paragraphs (e) and (f) of that subsection do not allow the exclusion where the asset representing the loan relationship has, under certain conditions, been in the beneficial ownership of “connected persons”.
Section 88(4)(b) explains what is meant by a connected person having the beneficial ownership of assets by applying the meaning of a connection given by section 87 of FA 1996. “Connected person” here is therefore also rewritten as referring to a connected company.