UK: Payments in satisfaction of related party debts treated as non-deductible distributions (Upper Tribunal decision)
When payments by a guarantor give rise to a loan relationship
Affirming a 2023 decision of the First-Tier Tribunal, the Upper Tribunal held in Swiss Centre Limited v HMRC [2026] UKUT 00227 (TCC) that payments made by the taxpayer in satisfaction of debts owed by certain related parties, in its capacity as a guarantor of such debts, did not constitute debt costs of the taxpayer falling under the “loan relationship” regime. The tribunal held that the payments were thus not deductible but instead must be treated as distributions.
While much of the Upper’s Tribunal’s decision addressed the taxpayer’s challenges to the First-tier Tribunal’s weighing of the particular factual evidence before it, the Upper Tribunal’s observations regarding when payments by a guarantor give rise to a loan relationship and when associated deductions may be disallowed as not being only for “the business or other commercial purposes” of the taxpayer itself will be of wider interest.
For more information, contact a KPMG tax professional in the UK:
Paul Freeman | paul.freeman@kpmg.co.uk
Tom Waterman | thomas.waterman@kpmg.co.uk