Income Tax Act 2007

[F1 Type 2 arrangements U.K.

Textual Amendments

F1 Ss. 809BZF-809BZI and cross-heading inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 3 (with Sch. 9 paras. 1-9, 22)

809BZF Type 2 finance arrangement defined U.K.

(1) For the purposes of this Chapter an arrangement is a type 2 finance arrangement if conditions A and B are met.

(2) Condition A is that—

(a) under the arrangement a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,

(b) the transferor [F2 or a person connected with the transferor] is a member of the partnership immediately after the disposal (whether or not a member immediately before it),

(c) under the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),

(d) there is a relevant change in relation to the partnership (see section 809BZG), and

(e) under the arrangement the share in the partnership's profits of the person involved in the change is determined by reference (wholly or partly) to payments in respect of the security.

[F3 (2A) For the purposes of subsection (2)(e) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.]

(3) Condition B is that in accordance with generally accepted accounting practice—

(a) the partnership's accounts for the period in which the advance is received record a financial liability in respect of it, and

(b) the payments reduce the amount of the financial liability.

(4) The reference to the partnership's accounts includes a reference to the transferor's accounts.

Textual Amendments

F2 Words in s. 809BZF(2)(b) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 34(2)

F3 S. 809BZF(2A) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 34(3)

809BZG Relevant change in relation to partnership U.K.

(1) For the purposes of this Chapter there is a relevant change in relation to a partnership if condition A or condition B is met.

(2) Condition A is that in connection with the arrangement the lender or a person connected with the lender becomes a member of the partnership at any time.

(3) Condition B is that—

(a) in connection with the arrangement there is at any time a change in a member's share in the partnership's profits, and

(b) the member is the lender or a person connected with the lender or a person who in connection with the arrangement becomes at any time connected with the lender.

(4) An event occurs in connection with the arrangement if it occurs directly or indirectly in consequence of it or otherwise in connection with it.

(5) If there is a relevant change in relation to a partnership, a reference in this Chapter to the person involved in the change is—

(a) if it is condition A that is met, to the person who becomes a member of the partnership, and

(b) if it is condition B that is met, to the member of the partnership in whose share in the partnership's profits there is a change.

809BZH Certain tax consequences not to have effect U.K.

(1) This section applies if—

(a) there is a type 2 finance arrangement, and

(b) any relevant change in relation to the partnership would have the relevant effect (ignoring this section).

(2) In such a case—

(a) Part 9 of ITTOIA 2005 (partnerships) is to have effect in relation to the transferor [F4 or the person connected with the transferor] as if the relevant change in relation to the partnership had not occurred, and

(b) accordingly the finance arrangement is not to have the relevant effect.

(3) The relevant effect is that—

(a) an amount of income on which the transferor [F4 or the person connected with the transferor] would otherwise have been charged to income tax is not so charged,

(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of the transferor [F4 or the person connected with the transferor] is not so brought into account, or

(c) the transferor [F4 or the person connected with the transferor] becomes entitled to an income deduction.

(4) In deciding whether subsection (1)(b) is met assume that amounts of income equal to the payments mentioned in section 809BZF(2)(e) were payable to the partnership before the relevant change in relation to it occurred.

(5) An income deduction is—

(a) a deduction in calculating income for income tax purposes, or

(b) a deduction from total income.

Textual Amendments

F4 Words in s. 809BZH inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 35

809BZI Deemed interest U.K.

(1) This section applies if—

(a) there is a type 2 finance arrangement,

(b) the transferor is a person within the charge to income tax, and

(c) in accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.

(2) For income tax purposes the transferor may treat the amount as interest payable by the transferor on a loan.

(3) The reference in subsection (1) to the partnership's accounts includes a reference to the transferor's accounts.

(4) If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—

(a) treat the payments mentioned in section 809BZF(2)(e) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,

(b) treat the interest elements of the payments as paid when the payments are paid, and

(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.]