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Free UK Loan Note Instrument Template (Non-Convertible)
A Loan Note Instrument is the constitutional document by which a UK company (the Issuer) constitutes loan notes — debt instruments evidencing the Issuer's obligation to repay principal and interest — in favour of one or more Holders. Use our free UK template to draft a NON-CONVERTIBLE "plain vanilla" loan note instrument under English, Scots or Northern Irish law — the dominant UK mid-market form used in PE / MBO vendor financing, mezzanine debt, sponsor add-on financing and intra-group debt. The instrument preserves the FA 1986 sections 78-79 stamp duty exemption for loan capital (provided no equity-conversion or profit-linked features creep in under s.79(5) or (6)), applies the CTA 2010 Part 5 loan relationships regime for Issuer interest deductibility, addresses the ITA 2007 Part 15 20% UK withholding tax framework with the UK group / quoted Eurobond / qualifying private placement / treaty rate exemptions, and supports multi-series Tranche A / B / C with differing terms and a register of Holders.
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LOAN NOTE INSTRUMENT (NON-CONVERTIBLE)
Deed · GBP · England And Wales · 12 August 2026
ISSUER
Caledonia Acquisitions Ltd
22 Lombard Street, London, EC3V 9AA
INITIAL HOLDER
Marlborough Trustees Ltd (as nominee for the Vendor Roll-Over Pool)
28 Pall Mall, London, SW1Y 5LS
TRUSTEE
Marlborough Trustees Ltd
28 Pall Mall, London, SW1Y 5LS
£12,000,000 Non-Convertible Loan Notes
Issued by Caledonia Acquisitions Ltd on 20 August 2026
This Loan Note Instrument (the "Instrument") is made on 12 August 2026 by Caledonia Acquisitions Ltd of 22 Lombard Street, London, EC3V 9AA (Companies House no. 14872361) (the "Issuer") in favour of Marlborough Trustees Ltd (as nominee for the Vendor Roll-Over Pool) of 28 Pall Mall, London, SW1Y 5LS (Companies House / equivalent no. 02834712) (the "Initial Holder") and Marlborough Trustees Ltd of 28 Pall Mall, London, SW1Y 5LS (Companies House no. 02834712) (the "Trustee"). The Issuer hereby constitutes £12,000,000 aggregate principal amount of non-convertible loan notes (the "Loan Notes") on the terms set out in this Instrument. The Loan Notes are NOT convertible into shares or other securities and accordingly fall within the loan capital exemption from stamp duty under section 79 of the Finance Act 1986. The Loan Notes are issued on 20 August 2026. This Instrument is executed as a deed for the purposes of the Law of Property (Miscellaneous Provisions) Act 1989 and the Companies Act 2006, with the consequence that the limitation period for any claim is twelve (12) years under section 8 of the Limitation Act 1980.
1.
CONSTITUTION OF THE LOAN NOTES
1.1 Aggregate principal. The Issuer constitutes £12,000,000 aggregate principal amount of non-convertible loan notes on the terms of this Instrument.
1.2 Form. The Loan Notes are issued in registered form and (unless otherwise specified in clause 8) without certificates. They are debt obligations of the Issuer and are NOT convertible into shares or other securities at any time, preserving the FA 1986 s.79 stamp duty exemption.
1.3 Ranking. The Loan Notes constitute direct, unconditional and (unless subordinated by clause 9) unsubordinated obligations of the Issuer ranking pari passu among themselves and with all other present and future unsecured obligations of the Issuer save for those preferred by law.
1.2 Form. The Loan Notes are issued in registered form and (unless otherwise specified in clause 8) without certificates. They are debt obligations of the Issuer and are NOT convertible into shares or other securities at any time, preserving the FA 1986 s.79 stamp duty exemption.
1.3 Ranking. The Loan Notes constitute direct, unconditional and (unless subordinated by clause 9) unsubordinated obligations of the Issuer ranking pari passu among themselves and with all other present and future unsecured obligations of the Issuer save for those preferred by law.
2.
INTEREST
2.1 Rate. Interest on the Loan Notes accrues at a fixed rate of 8.5% per annum.
2.2 Accrual. Interest accrues from day to day on an Actual / 365 day-count basis on the outstanding principal amount.
2.3 Payment. Interest is payable quarterly in arrears. The Issuer's obligation to pay interest is a debt obligation deductible under the loan relationship rules in Part 5 of the Corporation Tax Act 2010 subject to the arm's length test in s.449 CTA 2010 for related-party Holders.
2.4 Default interest. If any amount due under the Loan Notes is not paid on the due date, default interest accrues on the overdue amount at the rate of interest specified in clause 2.1 plus 2% per annum, from the due date to the date of actual payment (both inclusive).
2.2 Accrual. Interest accrues from day to day on an Actual / 365 day-count basis on the outstanding principal amount.
2.3 Payment. Interest is payable quarterly in arrears. The Issuer's obligation to pay interest is a debt obligation deductible under the loan relationship rules in Part 5 of the Corporation Tax Act 2010 subject to the arm's length test in s.449 CTA 2010 for related-party Holders.
2.4 Default interest. If any amount due under the Loan Notes is not paid on the due date, default interest accrues on the overdue amount at the rate of interest specified in clause 2.1 plus 2% per annum, from the due date to the date of actual payment (both inclusive).
3.
MATURITY AND REDEMPTION
3.1 Scheduled redemption. The Loan Notes mature in full on 20 August 2031 (the "Maturity Date"), at which the Issuer shall redeem the Loan Notes by repaying the outstanding principal plus any accrued and unpaid interest.
3.2 Early redemption by Issuer. The Issuer may, on giving the Holder not less than 30 days written notice, redeem all or part of the outstanding Loan Notes at par plus any accrued interest, subject to the redemption premium in clause 10 (where applicable).
3.3 Method. Redemption is effected by payment in cleared funds to the Holder's nominated account.
3.2 Early redemption by Issuer. The Issuer may, on giving the Holder not less than 30 days written notice, redeem all or part of the outstanding Loan Notes at par plus any accrued interest, subject to the redemption premium in clause 10 (where applicable).
3.3 Method. Redemption is effected by payment in cleared funds to the Holder's nominated account.
4.
GOVERNING LAW, JURISDICTION AND EXECUTION
4.1 Governing law. This Instrument and any dispute or claim arising out of or in connection with it (including non-contractual disputes) shall be governed by and construed in accordance with the laws of England and Wales. The parties irrevocably submit to the exclusive jurisdiction of the courts of England and Wales.
4.2 Execution. This Instrument is executed by two directors of the company (Companies Act 2006 s.44(2)(a)).
4.3 Limitation. This Instrument is executed as a deed; the limitation period is twelve (12) years under section 8 of the Limitation Act 1980.
4.2 Execution. This Instrument is executed by two directors of the company (Companies Act 2006 s.44(2)(a)).
4.3 Limitation. This Instrument is executed as a deed; the limitation period is twelve (12) years under section 8 of the Limitation Act 1980.
5.
MULTI-SERIES STRUCTURE
5.1 Multi-series structure. The Loan Notes constituted under this Instrument are issued in multiple series. The aggregate principal in clause 1.1 comprises:
Tranche A: £12,000,000 aggregate principal, interest rate 8.5%, maturing on 20 August 2031.
Tranche B: £4,000,000 aggregate principal, interest rate 10.5%, maturing on 20 August 2033.
5.2 Inter-Tranche. Each Tranche shall be treated as a separate class for voting and acceleration under clauses 6 and 9. Cross-default between Tranches is automatic; cross-acceleration requires the majority threshold in clause 6.5.
5.3 Register. The Issuer shall maintain a register of Holders of each Tranche at its registered office, recording (a) name and address of each Holder; (b) Tranche and principal held; (c) date of issue / acquisition; and (d) any encumbrances notified to the Issuer.
Tranche A: £12,000,000 aggregate principal, interest rate 8.5%, maturing on 20 August 2031.
Tranche B: £4,000,000 aggregate principal, interest rate 10.5%, maturing on 20 August 2033.
5.2 Inter-Tranche. Each Tranche shall be treated as a separate class for voting and acceleration under clauses 6 and 9. Cross-default between Tranches is automatic; cross-acceleration requires the majority threshold in clause 6.5.
5.3 Register. The Issuer shall maintain a register of Holders of each Tranche at its registered office, recording (a) name and address of each Holder; (b) Tranche and principal held; (c) date of issue / acquisition; and (d) any encumbrances notified to the Issuer.
6.
EVENTS OF DEFAULT AND ACCELERATION
6.1 Payment default. An Event of Default occurs if the Issuer fails to pay any amount of principal or interest when due and the failure continues for 14 days.
6.2 Cross-default. An Event of Default occurs if any other indebtedness of the Issuer exceeding £500,000 (or its equivalent in any other currency) is declared due before its stated maturity, or is not paid when due (subject to any applicable grace period).
6.3 Insolvency. An Event of Default occurs if the Issuer (a) becomes unable to pay its debts within the meaning of section 123 IA 1986; (b) suspends or threatens to suspend payment of its debts; (c) commences negotiations to reschedule its indebtedness; (d) is the subject of a winding-up, administration, receivership, voluntary arrangement or analogous proceeding; or (e) ceases or threatens to cease to carry on its business.
6.4 Change of control. An Event of Default occurs if there is a change in the ultimate beneficial ownership or control of the Issuer (whether by share transfer, scheme, restructuring or otherwise) without the prior written consent of the majority of Holders.
6.5 Acceleration. On the occurrence of an Event of Default which is continuing, seventy-five percent (75%) of Holders by principal amount may by notice in writing to the Issuer declare all outstanding Loan Notes (with accrued interest and any unpaid amounts) immediately due and payable. The notice takes effect on the date it is received by the Issuer at its registered office.
6.2 Cross-default. An Event of Default occurs if any other indebtedness of the Issuer exceeding £500,000 (or its equivalent in any other currency) is declared due before its stated maturity, or is not paid when due (subject to any applicable grace period).
6.3 Insolvency. An Event of Default occurs if the Issuer (a) becomes unable to pay its debts within the meaning of section 123 IA 1986; (b) suspends or threatens to suspend payment of its debts; (c) commences negotiations to reschedule its indebtedness; (d) is the subject of a winding-up, administration, receivership, voluntary arrangement or analogous proceeding; or (e) ceases or threatens to cease to carry on its business.
6.4 Change of control. An Event of Default occurs if there is a change in the ultimate beneficial ownership or control of the Issuer (whether by share transfer, scheme, restructuring or otherwise) without the prior written consent of the majority of Holders.
6.5 Acceleration. On the occurrence of an Event of Default which is continuing, seventy-five percent (75%) of Holders by principal amount may by notice in writing to the Issuer declare all outstanding Loan Notes (with accrued interest and any unpaid amounts) immediately due and payable. The notice takes effect on the date it is received by the Issuer at its registered office.
7.
NEGATIVE COVENANTS
7.1 No further pari passu debt. The Issuer shall not, without the prior written consent of the majority of Holders, incur, create or permit to subsist any indebtedness ranking pari passu with or senior to the Loan Notes, save for ordinary-course trade payables and excluding any indebtedness expressly subordinated to the Loan Notes.
7.2 No material disposals. The Issuer shall not dispose of any asset or class of assets having an aggregate value exceeding £1,000,000 in any twelve-month period without the prior written consent of the majority of Holders, save for disposals in the ordinary course of business at fair value.
7.3 Dividend restriction. The Issuer shall not declare, pay or make any dividend, distribution or return of capital to its shareholders (whether by repurchase, reduction or otherwise) without the prior written consent of the majority of Holders, while any of the Loan Notes remain outstanding.
7.4 Financial covenants. The Issuer covenants to maintain the following financial ratios, tested quarterly: Senior Net Leverage Ratio not greater than 4.5x EBITDA (LTM); Interest Cover Ratio not less than 2.5x; Minimum EBITDA of £4 million (LTM); tested quarterly on management accounts certified by CFO.. Breach of any financial covenant is an Event of Default under clause 6.
7.2 No material disposals. The Issuer shall not dispose of any asset or class of assets having an aggregate value exceeding £1,000,000 in any twelve-month period without the prior written consent of the majority of Holders, save for disposals in the ordinary course of business at fair value.
7.3 Dividend restriction. The Issuer shall not declare, pay or make any dividend, distribution or return of capital to its shareholders (whether by repurchase, reduction or otherwise) without the prior written consent of the majority of Holders, while any of the Loan Notes remain outstanding.
7.4 Financial covenants. The Issuer covenants to maintain the following financial ratios, tested quarterly: Senior Net Leverage Ratio not greater than 4.5x EBITDA (LTM); Interest Cover Ratio not less than 2.5x; Minimum EBITDA of £4 million (LTM); tested quarterly on management accounts certified by CFO.. Breach of any financial covenant is an Event of Default under clause 6.
8.
TRANSFER AND DENOMINATION
8.1 Transfer. A Holder may transfer all or part of its Loan Notes only with the prior written consent of the Issuer, such consent not to be unreasonably withheld or delayed. The Issuer shall respond to a request for consent within fourteen (14) days; failure to respond constitutes deemed consent.
8.2 Minimum denomination. Loan Notes shall be transferred in minimum denominations of £100,000 and integral multiples thereof.
8.3 Form of holding. The Loan Notes are issued in uncertificated form; the register of Holders maintained under clause 5 (or, where multi-series does not apply, this clause) is conclusive evidence of holding.
8.4 No transfer fee. The Issuer shall not charge a transfer fee, save for reasonable reimbursement of out-of-pocket expenses where significant administrative work is required.
8.2 Minimum denomination. Loan Notes shall be transferred in minimum denominations of £100,000 and integral multiples thereof.
8.3 Form of holding. The Loan Notes are issued in uncertificated form; the register of Holders maintained under clause 5 (or, where multi-series does not apply, this clause) is conclusive evidence of holding.
8.4 No transfer fee. The Issuer shall not charge a transfer fee, save for reasonable reimbursement of out-of-pocket expenses where significant administrative work is required.
9.
SUBORDINATION AND TRUSTEE
9.1 Subordination. The Loan Notes are subordinated to the senior indebtedness of the Issuer identified in the Inter-Creditor Agreement dated 12 August 2026 (the "Inter-Creditor Agreement"). The Holders' rights, including payment, voting and enforcement, are governed by and subject to the terms of the Inter-Creditor Agreement, which prevails in the event of conflict with this Instrument.
9.2 Trustee role. The Trustee is appointed to act on behalf of the Holders in respect of (a) receipt of payments from the Issuer for distribution; (b) coordinated enforcement against the Issuer on Event of Default; (c) communication and meeting of Holders; and (d) such other administrative functions as are customary for a loan note trustee. The Issuer shall indemnify the Trustee against all costs, charges, losses, expenses and liabilities reasonably incurred by the Trustee in the discharge of its duties under this Instrument, save where the loss arises from the Trustee's fraud, dishonesty or wilful default.
9.3 Trustee fees. Annual fee of £25,000 payable quarterly in advance; reimbursement of reasonable disbursements; out-of-scope work charged at standard hourly rates.
9.2 Trustee role. The Trustee is appointed to act on behalf of the Holders in respect of (a) receipt of payments from the Issuer for distribution; (b) coordinated enforcement against the Issuer on Event of Default; (c) communication and meeting of Holders; and (d) such other administrative functions as are customary for a loan note trustee. The Issuer shall indemnify the Trustee against all costs, charges, losses, expenses and liabilities reasonably incurred by the Trustee in the discharge of its duties under this Instrument, save where the loss arises from the Trustee's fraud, dishonesty or wilful default.
9.3 Trustee fees. Annual fee of £25,000 payable quarterly in advance; reimbursement of reasonable disbursements; out-of-scope work charged at standard hourly rates.
10.
TAX AND REDEMPTION PREMIUM
10.1 UK withholding tax. The Loan Notes are a qualifying private placement within sections 888A-888D of the Income Tax Act 2007. The Issuer pays interest without deduction of UK income tax, subject to the QPP conditions being met and the Holder providing the prescribed certification under regulation 6 of SI 2015/2002.
10.2 Holder certification. The Holder shall, before any interest payment, provide the Issuer with such certifications, declarations or evidence of tax residence or qualifying status as the Issuer may reasonably request to confirm the applicable WHT treatment.
10.3 Stamp duty. The Loan Notes are non-convertible and accordingly the loan capital exemption from stamp duty under section 79 of the Finance Act 1986 applies. The parties acknowledge that conversion into shares or other securities would disapply the exemption under s.79(5) FA 1986; this Instrument prohibits conversion. Transfers of Loan Notes are accordingly exempt from stamp duty / SDRT. The parties further acknowledge that the Finance Act 2026 has introduced a power for HMRC to operate a digital stamp taxes service for self-assessment; transfers may, where applicable, be self-assessed via that service.
10.4 Redemption premium. On any early redemption (whether by the Issuer under clause 3.2 or on acceleration following Event of Default), the Issuer shall pay a redemption premium of 2% of principal, in addition to the principal and accrued interest.
10.2 Holder certification. The Holder shall, before any interest payment, provide the Issuer with such certifications, declarations or evidence of tax residence or qualifying status as the Issuer may reasonably request to confirm the applicable WHT treatment.
10.3 Stamp duty. The Loan Notes are non-convertible and accordingly the loan capital exemption from stamp duty under section 79 of the Finance Act 1986 applies. The parties acknowledge that conversion into shares or other securities would disapply the exemption under s.79(5) FA 1986; this Instrument prohibits conversion. Transfers of Loan Notes are accordingly exempt from stamp duty / SDRT. The parties further acknowledge that the Finance Act 2026 has introduced a power for HMRC to operate a digital stamp taxes service for self-assessment; transfers may, where applicable, be self-assessed via that service.
10.4 Redemption premium. On any early redemption (whether by the Issuer under clause 3.2 or on acceleration following Event of Default), the Issuer shall pay a redemption premium of 2% of principal, in addition to the principal and accrued interest.
11.
EXECUTION
IN WITNESS WHEREOF this Instrument has been executed and delivered as a deed by the Issuer on the date set out at the start of this Instrument.
ISSUER
Caledonia Acquisitions Ltd
Date: ____________________
INITIAL HOLDER
Marlborough Trustees Ltd (as nominee for the Vendor Roll-Over Pool)
Date: ____________________
TRUSTEE
Marlborough Trustees Ltd
Date: ____________________
Available as a print-ready PDF or an editable Microsoft Word (.docx) file.
What Is a UK Loan Note Instrument?
A Loan Note Instrument is a UK constitutional debt document executed by an Issuer (the borrowing company) under which the Issuer constitutes loan notes — formal debt instruments — in favour of one or more Holders. The Instrument sets out the principal amount, currency, interest rate and accrual basis, payment frequency, maturity (bullet, amortising or on demand), default events, acceleration mechanics, transfer rules and (if any) security or subordination overlays. Once executed, loan notes are issued under the Instrument to specific Holders, recorded in the Register of Holders (where used) and (in deed form) given 12 years of enforceability under section 8 of the Limitation Act 1980. The Loan Note Instrument is the multi-Holder, multi-Tranche structural alternative to a bilateral loan agreement.
UK loan notes constituted under a non-convertible instrument fall within the FA 1986 sections 78-79 "loan capital" definition and benefit from a long-standing stamp duty exemption — both on issuance and on subsequent transfer between Holders. The exemption is the principal reason UK mid-market debt deals use loan notes rather than ordinary debt: PE / MBO vendor financing, mezzanine layers, and intra-group financing all rely on the s.79 exemption to keep transfers frictionless. Critically, the exemption is DISAPPLIED under s.79(5) for convertible loan notes (which are equity-flavoured) and under s.79(6) for loan notes where interest is tied to the borrower's profits or dividends ("results-linked" debt). This template is non-convertible and offers fixed, SONIA + margin and PIK interest configurations — none of which trigger s.79(5) or (6) — preserving the exemption throughout.
From the Issuer's tax perspective, loan notes are subject to the Corporation Tax Act 2010 Part 5 "loan relationships" regime: interest is deductible from the Issuer's profits as a debit (subject to transfer pricing under CTA 2010 Part 6 ss.448-481 for related-party debt and to the corporate interest restriction under TIOPA 2010 Part 10 for groups with substantial third-party debt). From the Holder's tax perspective, UK interest payments to non-UK Holders are subject to a 20% UK withholding tax under Income Tax Act 2007 Part 15 — unless one of the statutory exemptions applies (UK company-to-UK company; UK quoted Eurobond exemption; qualifying private placement; or treaty-rate reduction under a double tax treaty). The Expert template surfaces the WHT framework explicitly so the parties can structure for the relevant exemption from the outset.
What's Covered in This Template
This UK non-convertible Loan Note Instrument covers the full plain-vanilla debt architecture under English, Scots and Northern Irish law, with a Free baseline and an Expert tier covering multi-series, default events, negative covenants and tax framework.
Issuer + Initial Holder + Optional Trustee
Issuer with Companies House number, registered office, named signatory; Initial Holder (company / individual / partnership / LLP / investment fund); optional Trustee for multi-Holder issuances.
Principal Amount and Currency
GBP / EUR / USD principal amount with issuance date — anchoring the instrument to the specific debt commitment.
Execution Format (Free)
Deed (12 years under s.8 Limitation Act 1980 — UK market standard) or simple agreement (6 years under s.5). Deed format strongly recommended.
Interest Rate Basis (Free)
Fixed rate, SONIA + margin (the post-LIBOR UK reference), or PIK (payment in kind — capitalised and rolled up to maturity).
Interest Accrual Basis (Free)
Actual / 365, Actual / 360 (US market convention) or 30 / 360 (European convention).
Interest Payment Frequency (Free)
Monthly / quarterly / semi-annual / annual / at maturity — calibrated to the debt structure.
Maturity Mechanism (Free)
Bullet (single principal repayment at maturity — UK market standard for loan notes), amortising (scheduled instalments) or on demand.
Early Redemption Notice (Free)
Number of days notice required for Issuer voluntary early redemption — typically 7 / 14 / 30 days.
Governing Law and Execution
England and Wales / Scotland / Northern Ireland with matching exclusive jurisdiction; s.44 CA 2006 corporate execution format with witness fields.
Multi-Series Tranches (Expert)
Tranche A only (UK market default), Tranche A + B, or Tranche A + B + C with differing principal, rate and maturity — supports staged financings.
Register of Holders (Expert)
Issuer maintains a register identifying each Holder, principal held, Tranche, certificate number and transfer history — the operational backbone of multi-Holder issuances.
Default Events (Expert)
Payment default (always); cross-default with other indebtedness above £ threshold; insolvency event under Insolvency Act 1986; breach of covenant; misrepresentation.
Acceleration Mechanic (Expert)
On default event, Holders (or Trustee on instruction) may declare principal plus accrued interest immediately due and payable.
Negative Covenants (Expert)
No further pari passu or senior debt without consent; no material disposals; no dividends without consent — calibrated to the debt seniority.
Transfer Mechanics (Expert)
Free transfer / Issuer consent required / Holder majority consent; certificated or uncertificated; minimum denomination for transfers.
Subordination to Senior Debt (Expert)
Cross-reference to a parallel Inter-Creditor Agreement (where executed) to subordinate the loan notes to bank or senior debt.
FA 1986 ss.78-79 Compliance (Expert)
Express acknowledgement that the loan notes are non-convertible (s.79(5)) and interest is not tied to profits or dividends (s.79(6)) — preserving the stamp duty exemption on transfer.
ITA 2007 Part 15 WHT Framework (Expert)
Exemption claim under UK group / quoted Eurobond exemption / qualifying private placement / treaty rate — the operational framework for cross-border Holders.
Redemption Premium (Expert)
Optional redemption premium on maturity or early redemption — typically 1-3% on PE / MBO mezzanine deals.
QCB Election Tag (Expert)
Qualifying corporate bond under TCGA 1992 s.117 — flag for Holders' CGT treatment on disposal (QCBs are exempt from CGT).
How to Create a Loan Note Instrument
Follow these steps to draft a UK non-convertible Loan Note Instrument under English, Scots or Northern Irish law.
- 1
Enter Issuer and Initial Holder Details
Provide the Issuer (Companies House number, registered office, named signatory) and the Initial Holder (company / individual / partnership / LLP / investment fund). Add a Trustee for multi-Holder issuances.
- 2
Set Principal Amount and Currency
Insert the principal amount, currency (GBP / EUR / USD) and issuance date.
- 3
Pick Execution Format
Deed (12 years under s.8 Limitation Act 1980 — UK market standard) or simple agreement (6 years under s.5). The deed adds witness fields under s.44 CA 2006.
- 4
Set Interest Rate and Accrual
Pick fixed / SONIA + margin / PIK rate basis; insert rate; pick accrual basis (Actual / 365 — UK default, Actual / 360, or 30 / 360); pick payment frequency (monthly / quarterly / semi-annual / annual / maturity).
- 5
Set Maturity
Pick bullet (UK standard), amortising (with schedule) or on demand. Insert maturity date and early redemption notice period (7 / 14 / 30 days).
- 6
Pick Governing Law and Execution Method
England and Wales / Scotland / Northern Ireland. Pick s.44 CA 2006 corporate execution format (two directors / director + secretary / director witnessed) and add witness fields.
- 7
Configure Multi-Series Tranches (Expert)
Tranche A only / Tranche A + B / Tranche A + B + C. For each additional tranche, insert principal, rate and maturity. Tick register of Holders for multi-Holder issuances.
- 8
Configure Default Events and Acceleration (Expert)
Tick payment default (always), cross-default with £ threshold, insolvency event, breach of covenant. Pick acceleration trigger (Holder majority / Trustee on instruction).
- 9
Add Negative Covenants and Transfer Mechanics (Expert)
Tick no further pari passu / senior debt without consent, no material disposals, no dividends without consent. Pick transfer mechanics (free / Issuer consent / Holder majority) and minimum denomination.
- 10
Confirm Tax Framework and Download (Expert)
Acknowledge non-convertible status (preserves FA 1986 s.79 exemption); pick ITA 2007 Part 15 WHT exemption route (UK group / quoted Eurobond / QPP / treaty); flag TCGA s.117 QCB status. Review and download as a free PDF or, with Expert, editable Microsoft Word (.docx).
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Legal Considerations
UK Loan Note Instruments sit at the intersection of company law (CA 2006 Part 17 debentures), corporate tax (CTA 2010 Part 5 loan relationships), withholding tax (ITA 2007 Part 15), stamp duty (FA 1986 ss.78-79), capital gains tax (TCGA 1992 s.117 QCB), and insolvency (IA 1986). Each layer must be addressed correctly or the loan notes risk losing the s.79 exemption, generating unexpected WHT exposure, or being characterised differently for tax purposes.
This template is for informational purposes only and does not constitute legal advice. UK loan note issuances are highly specialised — for any issuance above £5 million principal, any issuance with non-UK Holders, any issuance with subordination to senior debt, any issuance with security (debenture / charges over assets), any issuance with related-party (group) terms, professional legal and tax advice from corporate counsel and a chartered tax adviser is strongly recommended.
Reviewed for England & Wales, Scotland and Northern Ireland corporate law and tax
FA 1986 ss.78-79 — The Loan Capital Stamp Duty Exemption
Section 78 of the Finance Act 1986 exempts "loan capital" from the regime that would otherwise apply, and section 79 extends the exemption to transfers of loan capital between Holders. "Loan capital" is defined broadly to include debentures and loan notes constituted by a UK company. The exemption is the principal commercial driver for using loan note instruments rather than ordinary debt: it makes Holder-to-Holder transfers frictionless. Critically, s.79(5) DISAPPLIES the exemption for convertible loan notes (which are equity-flavoured), and s.79(6) DISAPPLIES the exemption where interest is tied to the borrower's profits or dividends ("results-linked" debt). This template is non-convertible (preserving s.79(5)) and offers fixed, SONIA + margin and PIK interest configurations — none of which engage s.79(6). The Expert template includes an express drafting acknowledgement to preserve the exemption.
CTA 2010 Part 5 Loan Relationships and Interest Deductibility
From the Issuer's tax perspective, loan notes constituted under this Instrument are a "loan relationship" within the meaning of section 302 of the Corporation Tax Act 2010. Interest is deductible from the Issuer's profits as a loan relationship debit under CTA 2010 Part 5 — subject to two key restrictions. First, transfer pricing rules under CTA 2010 Part 6 (sections 448-481) require related-party debt to be on arm's length terms — section 449 imposes the arm's length test, and HMRC may adjust the deductible interest where the terms diverge from what unconnected parties would have agreed. Second, the corporate interest restriction under Part 10 of the Taxation (International and Other Provisions) Act 2010 restricts total UK group interest deductions where the group has more than £2 million of net tax-deductible interest. The Expert template flags both restrictions in the drafting.
ITA 2007 Part 15 — UK Withholding Tax on Interest
Where the Issuer pays interest to a non-UK Holder, Part 15 of the Income Tax Act 2007 imposes a 20% UK withholding tax at source unless one of several exemptions applies. The principal exemptions: (a) UK company-to-UK company interest (sections 933-937 ITA 2007 — no WHT between two UK corporates); (b) quoted Eurobond exemption (section 882 ITA 2007 — applies where the notes are listed on a "recognised stock exchange" within the meaning of section 1005 ITA 2007 or traded on a recognised multilateral trading facility); (c) qualifying private placement (sections 888A-D ITA 2007 — applies for UK Issuer to non-UK creditor with mid-market private placement features); (d) treaty rate reduction (typically 0% under most modern UK double-tax treaties for treaty-resident corporate creditors). The Expert template surfaces these exemptions explicitly so the parties can structure for the relevant route from the outset.
TCGA 1992 s.117 — Qualifying Corporate Bonds (Holder CGT)
From the Holder's tax perspective, the loan notes may or may not be "qualifying corporate bonds" (QCBs) under section 117 of the Taxation of Chargeable Gains Act 1992. A QCB is broadly any security that is a "corporate bond" and is denominated in sterling with no conversion right or premium for the Holder. QCBs are EXEMPT from CGT on disposal (and from chargeable gains by the Holder). Non-QCBs are within the CGT regime, and disposal at a gain is taxable. The QCB / non-QCB distinction is particularly important for individual Holders. The Expert template includes an explicit QCB flag so the Holder's tax adviser knows the position without needing to re-engineer the analysis from the instrument.
IA 1986 — Loan Notes in Issuer Insolvency
On Issuer insolvency, unsecured loan note Holders rank pari passu with other unsecured creditors after preferential creditors (employees), the Crown's £800,000 Prescribed Part set-aside under section 176A IA 1986 (2020 Order maintained the cap), and any costs of administration or liquidation. Where the loan notes are secured by a debenture (cross-referenced from the Instrument), the Holders rank ahead of unsecureds for the value of the security — typically a fixed charge over specified assets plus a floating charge over the balance, crystallising on insolvency. Subordination to senior bank debt is typically achieved through a separate Inter-Creditor Agreement signed by the Issuer, the senior lender, the loan note Holders and any guarantors. The Expert template cross-references both arrangements where used.
Companies Act 2006 Part 17 and the Deed Format Election
Sections 738-744 of the Companies Act 2006 define debentures and loan notes broadly — any instrument of indebtedness, secured or unsecured, falls within. Section 44 governs corporate execution: by two authorised signatories (typically two directors), by one director with the company secretary, or by one director in the presence of an attesting witness. Section 46 governs execution as a deed — the document must be CLEAR on its face that it is intended to be a deed (typically through the words "executed as a deed") and DELIVERY is required (presumed on execution unless rebutted). The deed format gives the Holder 12 years to enforce under s.8 Limitation Act 1980 versus 6 years for a simple contract under s.5. UK market practice is overwhelmingly to execute loan note instruments as deeds; the template defaults to deed format with an agreement-format fallback.
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Draft a UK non-convertible Loan Note Instrument with FA 1986 ss.78-79 stamp duty exemption preserved, CTA 2010 Part 5 loan relationships, ITA 2007 Part 15 WHT framework, multi-series Tranche A / B / C, default events stack and 12-year Limitation Act 1980 s.8 deed durability. Fill in the details, preview and download in minutes.
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