On the sale of a company, a seller may receive loan stock in the acquiring company as consideration for the sale. For tax purposes, loan notes are either QCBs or non-QCBs.

Generally, if a purchaser satisfies part of their consideration in the form of loan notes, a proportionate part of the seller's gain is deferred until the loan note is redeemed. The way in which this is done depends on whether the loan notes are QCBs or non-QCBs.

HMRC needs to be satisfied that the issue of the loan note is not for the purpose of tax avoidance and so it is always advisable to seek clearance from HMRC under TCGA 1992, s 138. For guidance on this see the Paper for paper treatment guidance note.


For loan stock to satisfy the definition of a QCB, it must satisfy three conditions. The loan stock:

  • must have been issued after March 1984
  • must be expressed in sterling, and
  • cannot be converted into any other currency

TCGA 1992, s 117

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