Taxman targets avoidance on debt buybacks

Stephen Timms

The Treasury has been forced to embark on a further round of tax avoidance measures on the buying back of debt at a discount.

Financial Secretary Stephen Timms said he was forced to prevent exploitation of a loophole opened up when he announced a tightening of the rules to ensure only debt buybacks undertaken with a discount, as part of a genuine corporate rescue, will benefit from the discount not being subject to tax.

The measure included provision for the debtor to be taxed on the discount when a subsequent release of debt takes place.

He told MPs: "It has since come to light that groups of companies may be able to avoid the discount that was not taxed at the time of the debt buyback being taxed on the subsequent release of the debt."

Any subsequent release of debt for shares will trigger a tax charge.

When introducing the package, Timms told MPs: "This Government will not tolerate tax avoidance or tax evasion in any form, and will act promptly to tackle both of these."