Section 162 — Corporation Tax Act 2010: Meaning of “normal commercial loan”

Meaning of “normal commercial loan” 162 1 For the purposes of sections 158(1)(b) and 159(4)(b) “ normal commercial loan ” means a loan—

a which is of or includes new consideration, and b in relation to which each of conditions A to D is met. 1B For those purposes, “normal commercial loan” also includes a hybrid capital instrument (within the meaning of section 475C of CTA 2009). 1A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 Condition A is that the loan does not carry any right to conversion into shares or securities other than a right to conversion into—

a shares to which section 164(1) applies, b securities to which section 164(2) applies, or c shares or securities in a quoted unconnected company (see section 164(2A)) or in the relevant company's quoted parent company (see section 164(3) to (7)).

3 Condition B is that the loan does not carry any right to the acquisition of shares or securities.

4 Condition C is that the loan does not entitle the loan creditor to any amount by way of interest which—

a depends to any extent on the results of the relevant company's business or on the results of any part of that business, b depends to any extent on the value of any of the relevant company's assets, or c exceeds a reasonable commercial return on the new consideration lent. This subsection needs to be read with section 163.

5 Condition D is that the loan is a loan in relation to which the loan creditor is entitled, on repayment, to an amount which—

a does not exceed the new consideration lent, or b is reasonably comparable with the amount generally repayable (in relation to an equal amount of new consideration) under the terms of issue of securities listed on a recognised stock exchange.