Overview
1106.This Chapter is based on sections 774A to 774G to ICTA, the rules on structured finance arrangements introduced by FA 2006. It stops a number of schemes which are intended to enable taxpayers to borrow money and obtain effective tax relief for both interest and repayment of principal.
1107.A “finance arrangement”, within this Chapter, is an arrangement where in accordance with GAAP a person (“the borrower”) records in its accounts a financial liability in respect of a sum (“advance”) paid by “the lender”, and that sum is paid to acquire assets (including an income stream), which will be used to repay the advance.
1108.Where there is a finance arrangement which would have had the effect that either:
income or receipts that would have been brought into account by the borrower for tax purposes are not brought into account; or
the borrower would have become entitled to a deduction in computing its income or profits for tax purposes,
then
the finance arrangement does not have that effect, with the result that the income from the transferred asset continues to be taxed on the borrower; and
any disposal or reacquisition of the asset is disregarded for the purposes of TCGA.
1109.Income tax relief is allowed for the amount of any interest or “finance charge” in respect of the finance agreement shown in the borrower’s accounts.
1110.This Chapter corresponds to Chapter 2 of Part 16 of CTA 2010, which makes similar provision for corporation tax. It has the following structure.
Sections 809BZA to 809BZE deal with “type 1 finance arrangements”: the simple case, not necessarily involving a partnership.
Sections 809BZF to 809BZI deal with “type 2 finance arrangements”: the first of two complex partnership cases.
Sections 809BZJ to 809BZL deal with “type 3 finance arrangements”: the second of two complex partnership cases.
Sections 809BZM to 809BZP make exceptions to these rules.
Sections 809BZQ to 809BZS are interpretative.
