EW 49B Guarantees for associated persons
When this section applies

(1)

This section applies when a guarantor pays an amount under a guarantee (a guarantee payment) for an associated person’s debt (the debtor) to the debtor’s creditor.

Repayment

(2)

For the debtor, the amount of the guarantee payment is treated as consideration paid or payable by the debtor for the debt.

New debt

(3)

If the guarantor has recourse to the debtor in relation to the guarantee payment, the guarantor is treated as providing the debtor with an interest-free loan for the amount of the guarantee payment.

No consideration paid

(4)

For the guarantor, the guarantee payment is treated as not being consideration paid or payable by the guarantor.

Repayment: income and deduction

(5)

If the debtor later repays the guarantor more than the guarantee payment, the excess paid by the debtor is—

(a)

income, under section CC 3(1) (Financial arrangements), of the guarantor; and

(b)

a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt in certain circumstances).

Defined in this Act: amount, associated person, deduction, income

Section EW 49B: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 78(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).