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Income Tax Act 2007

Type Public General Act

Publication 2007-03-20

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(b) the interest which the relevant creditor, or any other person, has in a bond (including the nature or size of the interest), and

(6) For the purposes of this section—

(a) “bond issuer” means the person by or through whom bonds were issued, and

(b) “relevant creditor” and “relevant debt” have the same meanings as in section 939(4A).

Maximum risk finance investments when relevant holding is issued requirement

504A

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835A

Chapter 3 of Part 2 of CTA 2009 (rules for determining residence of companies) applies for the purposes of the Income Tax Acts as it applies for the purposes of the Corporation Tax Acts.

The minimum investment on further issue condition

Time as from which VCT approval has effect

384A

(1) Relief is not to be given under this Chapter for interest paid by a person on a loan if—

(a) the loan is made to the person (“the borrower”) as part of arrangements which appear very likely to produce a post-tax advantage, and

(b) the arrangements seem to have been designed to reduce any income tax or capital gains tax to which the borrower (or any person whose circumstances are like those of the borrower) would be liable apart from the arrangements.

(2) Arrangements “appear very likely” to produce a post-tax advantage if (and only if) it would be reasonable to assume from either or both of—

(a) the likely effect of the arrangements, and

(b) the circumstances in which the arrangements, or any parts of the arrangements, are entered into or effected,

that there is no risk, or only an insignificant risk, that they will not produce a post-tax advantage.

(3) “Produce a post-tax advantage” means give rise to a sum or sums—

(a) payable to the borrower or a person connected with the borrower, or

(b) payable to any other person for the benefit of the borrower or a person connected with the borrower,

of an amount (or aggregate amount) which, after making the appropriate tax adjustments, is equal to or greater than the relevant amount.

(4) “The relevant amount” is the aggregate of—

(a) the amount required to meet the borrower's obligations in respect of the loan, and

(b) any amount which is used by the borrower in the same way as that which entitles the borrower to relief under this Chapter in respect of the loan and is not money lent to the borrower under any loan.

(5) If, with a view to securing that the condition in subsection (1)(a) is not met, the arrangements make provision for securing that, in all or any circumstances in which they do not produce a post-tax advantage, they will produce a broadly compensatory amount, the arrangements are to be regarded for the purposes of subsection (2) as making provision for securing the production of a post-tax advantage in those circumstances.

(6) “Produce a broadly compensatory amount” means give rise to a sum or sums payable as mentioned in subsection (3) of an amount (or aggregate amount) which, after making the appropriate tax adjustments, is not significantly less than the relevant amount.

(7) For the purposes of subsections (3) and (6) causing the value of an asset to be obtainable, directly or indirectly, by a person is to be treated as equivalent to giving rise to a sum payable to the person of an amount equal to that value.

(8) To make the appropriate tax adjustments for the purpose of subsection (3) or (6)—

(a) if A exceeds B, deduct the amount of the excess from the amount (or aggregate amount), and

(b) if B exceeds A, add the amount of the excess to the amount (or aggregate amount).

(9) For the purposes of subsection (8)—

A is the amount of any income tax, any capital gains tax and any tax under the law of a territory outside the United Kingdom to which the borrower is liable in consequence of the arrangements, and

B is the amount by which the borrower's liability to income tax and capital gains tax is (or apart from subsection (1) would be) reduced in consequence of the arrangements.

(10) Arrangements seem to have been designed to reduce any income tax or capital gains tax to which the borrower (or any person whose circumstances are like those of the borrower) would be liable apart from the arrangements if (and only if) it would be reasonable to assume from either or both of—

(a) the likely effect of the arrangements, and

(b) the circumstances in which the arrangements, or any parts of the arrangements, are entered into or effected,

that the arrangements, or any parts of the arrangements, are designed to do so.

(11) In this section “arrangements” means arrangements consisting of any number of agreements, understandings, schemes, transactions or other arrangements (whether or not legally enforceable); but in subsections (1)(a), (2), (5) and (9) the references to arrangements also include any related transactions.

(12) In subsection (11) “related transactions” means transactions in the case of which it is reasonable to assume from either or both of—

(a) the likely effect of the transactions, and

(b) the circumstances in which the transactions are entered into or effected,

that the transactions would not have been entered into or effected independently of the arrangements.

(13) Transactions are not prevented from being related transactions just because the transactions—

(a) are not between the same parties, or

(b) are not between parties to the arrangements.

Chapter 5A — Transfers of income streams

809AZA

(1) This Chapter applies where—

(a) a person within the charge to income tax (“the transferor”) makes a transfer to another person (“the transferee”) of a right to relevant receipts (see subsection (2)), and

(b) (subject to subsection (3)) the transfer of the right is not a consequence of the transfer to the transferee of an asset from which the right to relevant receipts arises.

(2) “Relevant receipts” means any income—

(a) which (but for the transfer) would be charged to income tax as income of the transferor, or

(b) which (but for the transfer) would be brought into account in calculating profits of the transferor for the purposes of income tax.

(3) Despite paragraph (b) of subsection (1), this Chapter applies if the transfer of the right is a consequence of the transfer to the transferee of all rights under an agreement for annual payments; and for the purposes of that paragraph the transfer of an asset under a sale and repurchase agreement is not to be regarded as a transfer of the asset.

(4) Section 809AZB makes provision as to the consequences of this Chapter applying.

(5) For exclusions from this Chapter, see—

(a) section 809AZC (amount otherwise taxed),

(b) section 809AZD (certain annuities), and

(6) Section 809AZF makes special provision about transfers of partnership shares.

(7) Section 809AZG contains supplementary provisions.

809AZB

(1) The relevant amount (see subsection (2)) is to be treated as income of the transferor chargeable to income tax in the same way and to the same extent as that in which the relevant receipts—

(a) would have been chargeable to income tax, or

(b) would have been brought into account in calculating any profits for the purposes of income tax,

but for the transfer of the right to relevant receipts.

(2) The relevant amount is—

(a) (except where paragraph (b) applies) the amount of the consideration for the transfer of the right, or

(b) where the amount of any such consideration is substantially less than the market value of the right at the time when the transfer takes place (or where there is no consideration for the transfer of the right), the market value of the right at that time.

(3) The income under subsection (1) is to be treated as arising in the chargeable period of the transferor in which the transfer takes place.

(4) But subsection (5) applies if (apart from the transfer) any of the relevant receipts—

(a) would have been brought into account in accordance with Part 2 or 3 of ITTOIA 2005 (trading income and property income) in calculating any profits for the purposes of income tax, and

(b) in accordance with generally accepted accounting practice, would have been recognised otherwise than wholly in the chargeable period in which the transfer takes place.

(5) If this subsection applies, the income under subsection (1) is to be treated as arising—

(a) to the extent that it does not exceed the amount of the consideration for the transfer of the right, in the chargeable period or periods for which, in accordance with generally accepted accounting practice, the consideration for the transfer is recognised for accounting purposes in a profit and loss account or income statement of the transferor, and

(b) otherwise, in the chargeable period or periods for which, in accordance with generally accepted accounting practice, the consideration for the transfer would be so recognised if it were of an amount equal to the market value of the right at the time when the transfer takes place.

(6) But if in a case where the transferor is a company it at any time becomes reasonable to assume that the income (to any extent) is not, or would not be, treated by subsection (5) as arising in an accounting period of the transferor, the income is to that extent to be treated as arising immediately before that time.

809AZC

This Chapter does not apply if and to the extent that the income under section 809AZB(1) is (apart from this Chapter)—

(a) charged to tax as income of the transferor,

(b) brought into account in calculating the profits of the transferor, or

809AZD

This Chapter does not apply to a transfer of a right to—

(a) annual payments under a life annuity as defined in section 473(2) of ITTOIA 2005, or

(b) annual payments under an annuity which is pension income within the meaning of Part 9 of ITEPA 2003 (see section 566(2) of that Act).

809AZE

(1) This Chapter does not apply if—

(a) the consideration for the transfer is the advance under a type 1 finance arrangement, and

(b) the transferor is, or is a member of a partnership which is, the borrower in relation to the arrangement.

(2) This Chapter does not apply if—

(a) the consideration for the transfer is the advance under a type 2 finance arrangement or a type 3 finance arrangement, and

(b) the transferor is a member of the partnership which receives that advance under the arrangement.

(3) In this section—

“type 1 finance arrangement” has the meaning given for the purposes of Chapter 5B by section 809BZA,

“type 2 finance arrangement” has the meaning given for the purposes of Chapter 5B by section 809BZF, and

“type 3 finance arrangement” has the meaning given for the purposes of Chapter 5B by section 809BZJ.

809AZF

(1) For the purposes of this Chapter a transfer of a right to relevant receipts consisting of the reduction in a transferor's share in the profits or losses of a partnership is to be regarded as a consequence of a transfer of an asset from which the right arose (that is, the partnership property) ....

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

809AZG

(1) For the purposes of this Chapter—

(a) the grant or surrender of a lease of land is to be regarded as a transfer of the land, and

(b) the disposal of an interest in an oil licence (within the meaning of section 809 of CTA 2009) is to be regarded as a transfer of the oil licence.

(2) The Treasury may by order make other provision for securing that other transactions are to be regarded as transfers of assets for those purposes.

(3) In this Chapter—

(a) references to a transfer include sale, exchange, gift and assignment (or assignation) and any other arrangement which equates in substance to a transfer, and

(b) references to a transfer taking place are, in the case of an arrangement other than a sale, exchange, gift or assignment (or assignation), to the making of the arrangement.

(4) A transfer to or by any partnership of which the transferor or transferee is a member, and a transfer to the trustees of any trust of which the transferor is a beneficiary, counts as a transfer in relation to which this Chapter applies.

Chapter 1A — Exemption for persons not domiciled in United Kingdom

828A

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828B

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828C

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828D

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979A

(1) This section applies where a payment is made under the FSCS representing interest net of an amount equal to a sum representing income tax that would have been deducted on the payment of interest but for the circumstances giving rise to the making of payments under the FSCS.

(2) A payment of the relevant gross amount is treated as having been made under the FSCS after there has been deducted from it a sum representing income tax of that amount.

(3) That sum is accordingly taken into account under section 59B of TMA 1970 in determining the income tax payable by, or repayable to, the recipient.

(4) “The relevant gross amount” means the aggregate of the amount of the payment representing interest which is made and that sum.

(5) If the recipient requests it in writing, the scheme manager of the FSCS must provide the recipient with a statement showing—

(a) the relevant gross amount,

(b) the amount of the sum treated as deducted, and

(6) The duty to comply with a request under subsection (5) is enforceable by the recipient.

(7) In this section—

“the FSCS” means the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000);

“payment representing interest” has the same meaning as in section 380A of ITTOIA 2005.

Overview of Income Tax Acts

Limit on reliefs in any tax year not to exceed cap for tax year

Maximum risk finance investments at the issue date requirement

No previous other risk capital scheme investments

Cases where maximum EIS relief not obtained

Cases where maximum SEIS relief not obtained

The property managing subsidiaries requirement

Alternative requirements for the giving of approval

Overview of charges to income tax

Income charged at the ... basic , higher and additional rates: individuals

Tax reductions

Limit on Step 2 deductions

Calculation of net income at Step 2 for low income estates and trusts

Put options

Cases where maximum EIS relief not obtained

Amount of repayments etc where there is more than one issue of shares

Restriction on withdrawal of relief under section 224

Maximum risk finance investments at the issue date requirement

Alternative finance arrangements

372A

(1) In this Part and regulations made under Chapter 2 of this Part—

(a) references to a “loan” include references to alternative finance arrangements, and

(b) references to “interest” include references to alternative finance return.

(2) In subsection (1)—

“alternative finance arrangements” means arrangements to which any of the following applies—section 564C (purchase and resale arrangements),section 564E (deposit arrangements), andsection 564F (profit share agency arrangements), and

“alternative finance return” has the meaning given by section 564I and 564L(1) and (2).

(3) Subsection (1) needs to be read with—

(a) section 372B, in the case of arrangements to which section 564C applies,

(b) section 372C, in the case of arrangements to which section 564E applies, and

372B

(1) This section applies if, under arrangements to which section 564C applies, a person (“the first purchaser”) purchases an asset that is sold to another person (“the second purchaser”).

(2) This Part and regulations made under Chapter 2 of this Part have effect in relation to the arrangements in accordance with subsections (3) to (9).

(3) The first purchaser is treated as making a loan to the second purchaser.

(4) The amount of the loan is treated as being equal to the first purchase price.

(5) If the arrangements provide that the first purchaser will transfer ownership of the asset to the second purchaser in instalments—

(a) references to the loan being drawn down over a period of time include references to the asset being transferred to the second purchaser in instalments,

(b) references to the date on which the first amount of the loan is drawn down include references to the date on which the first instalment is transferred to the second purchaser, and

(c) references to the amount drawn down at a given date include references to the value of the instalments transferred at that date.

(6) In calculating the amount of capital outstanding on the loan, each payment of the second purchase price (or part of the second purchase price), as reduced by any amount of alternative finance return included within each payment, is treated as repayment of the loan capital.

(7) References to the beneficial owner of the loan include references to the person beneficially entitled to payment of the second purchase price.

(8) References to the disposal of the whole or any part of the loan include references to the disposal of the right to receive payment of the whole or any part of the outstanding second purchase price.

(9) If arrangements to which section 564C applies are, as a result of this section, qualifying investments under Chapter 3 of this Part, paragraph (f) of section 366(1) is to be ignored in relation to the arrangements concerned.

(10) In this section “the first purchase price” and “the second purchase price” have the same meaning as in section 564C.

372C

(1) This section applies if, under arrangements to which section 564E applies, a person (“the depositor”) deposits money with a financial institution.

(2) This Part and regulations made under Chapter 2 of this Part have effect in relation to the arrangements in accordance with subsections (3) to (9).

(3) The depositor is treated as making a loan to the financial institution.

(4) The amount of the loan is treated as being equal to the money deposited under the arrangements.

(5) If the arrangements provide that the depositor will deposit a sum of money with the financial institution in instalments—

(a) references to the loan being drawn down over a period of time include references to the depositor depositing a sum of money with the financial institution in instalments,

(b) references to the date on which the first amount of the loan is drawn down include references to the date on which the first instalment is deposited with the financial institution, and

(c) references to the amount drawn down at a given date include references to the value of the instalments deposited with the financial institution at that date.

(6) The capital outstanding on the loan is treated as being equal to the balance of the repayable deposit.

(7) References to any repayment of the loan include references to any repayment of the deposit.

(8) References to the beneficial owner of the loan include references to the person beneficially entitled to repayment of the deposit.

(9) References to the disposal of the whole or any part of the loan include references to the disposal of the right to receive repayment of the whole or any part of the deposit.

(10) In this section “financial institution” has the same meaning as in Part 10A (see section 564B).

372D

(1) This section applies if, under arrangements to which section 564F applies, a person (“the principal”) appoints a financial institution as agent.

(2) This Part and regulations made under Chapter 2 of this Part have effect in relation to the arrangements in accordance with subsections (3) to (9).

(3) The principal is treated as making a loan to the agent.

(4) The amount of the loan is treated as being equal to the money provided by the principal to the agent under the arrangements.

(5) If the arrangements provide that the principal will provide a sum of money to the agent in instalments—

(a) references to the loan being drawn down over a period of time include references to the principal providing a sum of money to the agent in instalments,

(b) references to the date on which the first amount of the loan is drawn down include references to the date on which the first instalment is provided to the agent, and

(c) references to the amount drawn down at a given date include references to the value of the instalments provided to the agent at that date.

(6) The capital outstanding on the loan is treated as being equal to the balance of the repayable money provided to the agent.

(7) References to any repayment of the loan include references to any repayment of the money provided to the agent.

(8) References to the beneficial owner of the loan include references to the person beneficially entitled to repayment of the money provided to the agent.

(9) References to the disposal of the whole or any part of the loan include references to the disposal of the right to receive repayment of the whole or any part of the money provided to the agent.

(10) In subsection (1) “financial institution” has the same meaning as in Part 10A (see section 564B).

Payments constituting income of beneficiary (other than employment income)

Payments constituting employment income of beneficiary

496A

(1) Section 496B applies if—

(a) in a tax year the trustees of a settlement make a discretionary employment income payment, and

(b) the trustees are UK resident for the tax year.

(2) In this section and section 496B, “discretionary employment income payment” means a payment to a person (“the beneficiary”) that—

(a) is made in the exercise of a discretion (whether exercisable by the trustees or any other person),

(b) is made out of income, and

(3) Condition A is that what is paid to the beneficiary—

(a) is, only because of the payment, employment income of the beneficiary, but

(b) is not exempt income (as defined in section 8 of ITEPA 2003).

(4) Condition B is that the payment is made at a time when the settlement is an employee benefit settlement.

(5) A settlement is an employee benefit settlement if the trusts on which the settled property is held do not permit the settled property to be applied otherwise than—

(a) for the benefit of persons of one or more relevant classes, or

(b) for the benefit of such persons and for charitable purposes.

(6) “Relevant class” means a class defined by reference to one or more of the following—

(a) employment in a particular trade or profession,

(b) employment by, or holding office with, a body carrying on a trade, profession or undertaking, or

(c) marriage to or civil partnership with, or relationship to, or dependence on, persons of a class mentioned in paragraph (a) or (b).

(7) Where the trusts on which the settled property is held do not permit the settled property to be applied otherwise than as described in subsection (5) during a period (however defined), the settlement is an employee benefit settlement during (and only during) that period.

496B

(1) The trustees of a settlement are entitled (on making a claim in respect of a tax year) to repayment of an amount of income tax equal to the lesser of amount A and amount B.

(2) Amount A is—

$$TEI×TR$where—TEI is the total of the amounts that are employment income of beneficiaries of the settlement because of discretionary employment income payments made in the tax year by the trustees, and TR is the trust rate in force for the tax year.$

(3) Amount B is the amount of the trustees’ tax pool available for the tax year (see section 497) reduced (but not so that is goes below nil) by the total amount of income tax (if any) treated under section 494 as having been paid as a result of payments made by the trustees in the tax year.

(4) A claim under this section may not be made before the end of the tax year to which it relates.

Tax pool

Part 10A — Alternative finance arrangements

Introduction

564A

(1) This Part—

(a) contains provisions about the treatment as interest for certain income tax purposes of alternative finance return under alternative finance arrangements ... (see sections 564M to 564Q), and

(b) contains some special provisions about the treatment of investment bond arrangements (see sections 564R to 564U) and some other rules about alternative finance arrangements (see sections 564V to 564Y).

(2) In this Part “alternative finance arrangements” means—

(a) purchase and resale arrangements,

(b) diminishing shared ownership arrangements,

(d) profit share agency arrangements, and

(e) investment bond arrangements.

(3) In this Part—

(a) “purchase and resale arrangements” means arrangements to which section 564C applies,

(b) “diminishing shared ownership arrangements” means arrangements to which section 564D or 564DA applies,

(d) “profit share agency arrangements” means arrangements to which section 564F applies, and

(e) “investment bond arrangements” means arrangements to which section 564G applies.

(4) For the meaning of “alternative finance return”, see sections 564I to 564L.

(5) For the meaning of “financial institution”, see section 564B.

(6) Also, see section 366 of TIOPA 2010 (power to extend this Part and other provisions to other arrangements by order).

564B

(1) In this Part “financial institution” means—

(a) a bank, as defined by section 991,

(b) a building society,

(i) of a bank within paragraph (a), or

(ii) of a building society,

(d) a person with permission under Part 4A of the Financial Services and Markets Act 2000 to enter into, or to exercise or have the right to exercise rights and duties under, a contract of the kind mentioned in paragraph 23 or paragraph 23B of Schedule 2 to that Act (credit agreements and contracts for hire of goods);

(e) a bond-issuer, within the meaning of section 564G, but only in relation to any bond assets which are rights under purchase and resale arrangements, diminishing shared ownership arrangements or profit share agency arrangements,

(f) a person authorised in a jurisdiction outside the United Kingdom—

(i) to receive deposits or other repayable funds from the public, and

(ii) to grant credits for its own account,

(g) an insurance company as defined in section 65 of FA 2012, or

(h) a person who is authorised in a jurisdiction outside the United Kingdom to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business but not an insurance special purpose vehicle as defined in section 139(1) of FA 2012.

(1A) Subsection (1)(d) must be read with—

(a) section 22 of the Financial Services and Markets Act 2000,

(b) any relevant order under that section, and

(2) For the purposes of subsection (1)(c) a company is a wholly-owned subsidiary of a bank or building society (“the parent”) if it has no members except—

(a) the parent or persons acting on behalf of the parent, and

(b) the parent's wholly-owned subsidiaries or persons acting on behalf of the parent's wholly-owned subsidiaries.

Arrangements that are alternative finance arrangements

564C

(1) This section applies to arrangements if—

(a) they are entered into between two persons (“the first purchaser” and “the second purchaser”), and—

(i) at least one of those persons is a financial institution, or

(ii) the arrangements are regulated electronic system facilitated arrangements, and

(b) under the arrangements—

(i) the first purchaser purchases an asset and sells it to the second purchaser,

(ii) the sale occurs immediately after the purchase or in the circumstances mentioned in subsection (2),

(iii) all or part of the second purchase price is not required to be paid until a date later than that of the sale,

(iv) the second purchase price exceeds the first purchase price, and

(v) the excess equates, in substance, to the return on an investment of money at interest.

(2) The circumstances are that—

(a) the first purchaser is a financial institution, and

(b) the asset referred to in subsection (1)(b)(i) was purchased by the first purchaser for the purpose of entering into arrangements within this section.

(2A) Arrangements are regulated electronic system facilitated arrangements if—

(a) the arrangements substantially consist of an article 36H agreement in relation to the deferral of the payment of all or part of the second purchase price,

(b) the first purchaser would be regarded, for the purposes of that agreement, as the lender under it,

(d) those purchasers becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).

(3) In this section—

“the first purchase price” means the amount paid by the first purchaser in respect of the purchase, ...

“the second purchase price” means the amount payable by the second purchaser in respect of the sale.

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order.

(4) This section is subject to section 564H (provision not at arm's length: exclusion of arrangements from this section and sections 564D to 564G).

564D

(1) This section applies to arrangements if under them—

(a) a person (“the financier”) acquires a beneficial interest in an asset,

(aa) either—

(i) the financier is a financial institution or a regulated home purchase plan provider, or

(ii) the arrangements are regulated electronic system facilitated arrangements,

(b) another person (“the customer”) also acquires a beneficial interest in it,

(c) the customer is to make payments to the financier amounting in aggregate to the consideration paid for the acquisition of the financier’s beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),

(d) the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,

(e) the customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),

(f) the customer has the exclusive right to occupy or otherwise to use the asset, and

(g) the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).

(1A) Arrangements are regulated electronic system facilitated arrangements if—

(a) the arrangements substantially consist of an article 36H agreement in relation to the enjoyment by the customer of the rights referred to in subsection (1)(f) and (g) before the customer’s acquisition of the financier’s beneficial interest,

(b) the customer would be regarded, for the purposes of that agreement, as the borrower under it,

(d) the customer and the financier becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).

(2) For the purposes of subsection (1)(a) it does not matter if—

(a) the financier acquires its beneficial interest from the customer,

(b) the customer, or another person who is not the financier, also has a beneficial interest in the asset, or

(3) Subsection (1)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.

(4) The conditions are that—

(a) the grant is not to—

(i) the financier,

(ii) a person controlled by the financier, or

(iii) a person controlled by a person who also controls the financier, and

(b) the grant is not required by the financier or arrangements to which the financier is a party.

(5) Subsection (1)(g) does not prevent the financier from—

(a) having responsibility for any reduction in the asset's value, or

(b) having a share in a loss arising out of any such reduction.

(6) This section is subject to section 564H (provision not at arm's length: exclusion of arrangements from section 564C, this section and sections 564DA to 564G).

(7) In this section—

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order;

“regulated home purchase plan provider” means a person who—is carrying on the regulated activity specified in article 63F(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (entering into regulated home purchase plans as home purchase provider), andhas permission under Part 4A of FISMA 2000 to do so.

564E

(1) This section applies to arrangements if under them—

(a) a person (“the depositor”) deposits money with a financial institution,

(b) the money, together with money deposited with the institution by other persons, is used by it with a view to producing a profit,

(c) from time to time the institution makes or credits a payment to the depositor out of profit resulting from the use of the money,

(d) the payment is in proportion to the amount deposited by the depositor, and

(e) the payments so made or credited by the institution equate, in substance, to the return on an investment of money at interest.

(2) This section is subject to section 564H (provision not at arm's length: exclusion of arrangements from sections 564C and 564D, this section and sections 564F and 564G).

564F

(1) This section applies to arrangements if under them—

(a) a person (“the principal”) appoints an agent,

(b) one or both of the principal and agent is a financial institution,

(d) the principal is entitled, to a specified extent, to profits resulting from the use of the money,

(e) the agent is entitled to any additional profits resulting from its use (and may also be entitled to a fee paid by the principal), and

(f) payments made because of the principal's entitlement to profits equate, in substance, to the return on an investment of money at interest.

(2) This section is subject to section 564H (provision not at arm's length: exclusion of arrangements from sections 564C to 564E, this section and section 564G).

564G

(1) This section applies to arrangements if—

(a) they provide for one person (“the bond-holder”) to pay a sum of money (“the capital”) to another (“the bond-issuer”),

(b) they identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (“the bond assets”),

(d) the bond-issuer undertakes under the arrangements—

(i) to dispose at the end of the bond term of any bond assets which are still in the bond-issuer's possession,

(ii) to make a repayment of the capital (“the redemption payment”) to the bond-holder during or at the end of the bond-term (whether or not in instalments), and

(iii) to pay to the bond-holder other payments on one or more occasions during or at the end of the bond term (“additional payments”),

(e) the amount of the additional payments does not exceed an amount which would be a reasonable commercial return on a loan of the capital,

(f) under the arrangements the bond-issuer undertakes to arrange for the management of the bond assets with a view to generating income sufficient to pay the redemption payment and additional payments,

(g) the bond-holder is able to transfer the rights under the arrangements to another person (who becomes the bond-holder because of the transfer),

(h) the arrangements are a listed security on a recognised stock exchange or admitted to trading on a multilateral trading facility operated by a regulated recognised stock exchange, and

(i) the arrangements are wholly or partly treated in accordance with international accounting standards as a financial liability of the bond-issuer, or would be if the bond-issuer applied those standards.

(2) For the purposes of subsection (1)—

(a) the bond-issuer may acquire bond assets before or after the arrangements take effect,

(b) the bond assets may be property of any kind, including rights in relation to property owned by someone other than the bond-issuer,

(c) the identification of the bond assets mentioned in subsection (1)(b) and the undertakings mentioned in subsection (1)(d) and (f) may (but need not) be described as, or accompanied by a document described as, a declaration of trust,

(d) a reference to the management of assets includes a reference to disposal,

(e) the bond-holder may (but need not) be entitled under the arrangements to terminate them, or participate in terminating them, before the end of the bond term,

(f) the amount of the additional payments may be—

(i) fixed at the beginning of the bond term,

(ii) determined wholly or partly by reference to the value of or income generated by the bond assets, or

(iii) determined in some other way,

(g) if the amount of the additional payments is not fixed at the beginning of the bond term, the reference in subsection (1)(e) to the amount of the additional payments is a reference to the maximum amount of the additional payments,

(h) the amount of the redemption payment may (but need not) be subject to reduction in the event of a fall in the value of the bond assets or in the rate of income generated by them, ... and

(i) entitlement to the redemption payment may (but need not) be capable of being satisfied (whether or not at the option of the bond-issuer or the bond-holder) by the issue or transfer of shares or other securities.

(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2A) In subsection (1)—

“regulated recognised stock exchange” means a recognised stock exchange that is regulated in the United Kingdom, the European Economic Area or Gibraltar;

“multilateral trading facility” means—a UK multilateral trading facility within the meaning given by Article 2.1(14A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,an EU multilateral trading facility within the meaning given by Article 2.1(14B) of that Regulation, and a Gibraltar multilateral trading facility within the meaning given by Article 26(11)(b)(ii) of that Regulation.

...

(3) This section is subject to section 564H (provision not at arm's length: exclusion of arrangements from sections 564C to 564F and this section).

564H

(1) Arrangements to which this section applies are not—

(a) purchase and resale arrangements,

(b) diminishing shared ownership arrangements,

(d) profit share agency arrangements, or

(e) investment bond arrangements.

(2) This section applies to arrangements if—

(a) apart from this section they would be alternative finance arrangements,

(b) subsection (3) or (5) of section 147 of TIOPA 2010 (tax calculations to be based on arm's length, not actual, provision) requires the profits and losses of a person who is a party to the arrangements to be calculated for tax purposes as if the arm's length provision (within the meaning of that section) had been made or imposed rather than in accordance with the arrangements,

(i) relevant return in relation to the arrangements, or

(ii) an amount representing relevant return in relation to them, and

(d) the affected person is not subject—

(i) to income tax or corporation tax, or

(ii) to any corresponding tax under the law of a territory outside the United Kingdom,

on the relevant return or the amount representing it.

(3) In this section “relevant return”, in relation to arrangements, means any amount which would be alternative finance return if the arrangements were alternative finance arrangements.

Meaning of “alternative finance return”

564I

(1) In the case of purchase and resale arrangements, so much of the second purchase price as is specified under the following provisions of this section is alternative finance return for the purposes of this Part.

(2) If under the arrangements the whole of the second purchase price is paid on one day, the alternative finance return equals the amount by which the second purchase price exceeds the first purchase price.

(3) If under the arrangements the second purchase price is paid by instalments, the alternative finance return in each instalment equals the appropriate amount.

(4) The appropriate amount is an amount equal to the interest which would have been included in the instalment on the assumptions in subsection (5).

(5) The assumptions are that—

(a) interest is payable on a loan by the first purchaser to the second purchaser of an amount equal to the first purchase price,

(b) the total interest payable on the loan is equal to the amount by which the second purchase price exceeds the first purchase price,

(d) the loan is made on arm's length terms and accounted for under generally accepted accounting practice.

(6) In this section expressions used in section 564C have the same meaning as in that section.

564J

(1) If, in the case of purchase and resale arrangements, alternative finance return is paid in a currency other than sterling—

(a) by or to a person other than a company, and

(b) otherwise than for the purposes of a trade, profession or vocation or a property business,

subsections (2) and (3) apply as respects that person.

(2) The amount of the excess referred to in section 564I(2) and (5)(b) and the appropriate amount for the purposes of section 564I(3) and (4) are to be calculated in that other currency.

(3) The amount of each payment of alternative finance return is to be translated into sterling at a spot rate of exchange for the day on which the payment is made.

564K

(1) In the case of diminishing shared ownership arrangements, payments by the customer under the arrangements are alternative finance return for the purposes of this Part, except so far as subsection (2) or (3) applies to them.

(2) This subsection applies to the payments so far as they amount to payments of the kind described in section 564D(1)(c) or 564DA(1)(d) or (2)(c) (payments to be made by the customer to the financier, amounting to the consideration paid for the acquisition of the financier’s beneficial interest).

(3) This subsection applies to the payments so far as they amount to payments in respect of any arrangement fee or legal or other expenses which the customer is required under the arrangements to pay.

(4) In this section “the customer” has the same meaning as in section 564D or 564DA.

564L

(1) In the case of deposit arrangements, amounts paid or credited as mentioned in section 564E(1)(c) by a financial institution under the arrangements (payments to depositor out of profits resulting from use of money) are alternative finance return for the purposes of this Part.

(2) In the case of profit share agency arrangements, amounts paid or credited by a financial institution in accordance with such an entitlement as is mentioned in section 564F(1)(d) (principal's entitlement to profits under the arrangements) are alternative finance return for the purposes of this Part.

(3) In the case of investment bond arrangements, the additional payments under the arrangements are alternative finance return for the purposes of this Part, but subject to subsection (4).

(4) If any part of the additional payments in respect of investment bond arrangements equates in substance to discount, that part is not treated as alternative finance return for income tax purposes.

(5) In this section “additional payments” has the same meaning as in section 564G (see subsection (1)(d)(iii) of that section).

(6) For the treatment of the part of the additional payments to which subsection (4) applies, see section 564R (treatment of discount).

Treatment of alternative finance return as interest etc

564M

(1) Alternative finance return is treated as interest for the purposes of ITTOIA 2005.

(2) References to interest in section 380 of that Act (funding bonds) include references to alternative finance return.

564N

(1) This section applies so far as a person is a party to alternative finance arrangements for the purposes of—

(a) a trade, profession or vocation carried on by that person, or

(b) a property business of that person.

(2) Alternative finance return paid by that person is treated as an expense of the trade, profession, vocation or business.

(3) In section 58 of ITTOIA 2005—

(a) references to a loan include references to alternative finance arrangements, and

(b) references to interest include references to alternative finance return.

564O

(1) Chapter 1 of Part 8 of this Act (interest payments) has effect as if—

(a) purchase and resale arrangements involved the making of a loan, and

(b) alternative finance return were interest.

(2) Section 412 (information) has effect accordingly.

564P

Section 809ZG (tax relief schemes and arrangements) applies to alternative finance return as it applies to interest.

564Q

(1) Chapter 2 of Part 15 and section 876 (deduction of income tax at source: exception for deposit-takers), and Chapter 19 of that Part so far as it has effect for the purposes of Chapter 2 of that Part and section 876, have effect as if—

(a) relevant alternative finance arrangements were a deposit,

(b) for the purposes of section 866(2)(a) such arrangements were a deposit consisting of a loan, and

(2) For the purposes of subsection (1) alternative finance arrangements are relevant unless they are purchase and resale arrangements where the second purchaser is not a financial institution.

(3) In subsection (2) “the second purchaser” has the same meaning as in section 564C.

(4) In Chapter 12 of Part 15 (funding bonds) references to interest include references to alternative finance return.

(5) Chapters 3 to 5 of Part 15 except section 876, and Chapter 19 of that Part so far as it has effect for the purposes of those provisions, apply to alternative finance return as they apply to interest.

Special rules for investment bond arrangements

564R

(1) This section applies if any part of the additional payments in respect of investment bond arrangements is excluded from being alternative finance return by section 564L(4) because it equates in substance to discount.

(2) That part is treated in accordance with section 381 of ITTOIA 2005 (discounts) unless subsection (3) applies.

(3) If the arrangements are deeply discounted securities for the purposes of Chapter 8 of Part 4 of that Act (profits from deeply discounted securities), that part is treated in accordance with that Chapter.

(4) In this section “additional payments” has the same meaning as in section 564G of this Act (see subsection (1)(d)(iii) of that section).

564S

(1) This section applies for the purposes of the Income Tax Acts and irrespective of the position for other purposes.

(2) The bond-holder under investment bond arrangements is not treated as having a legal or beneficial interest in the bond assets.

(3) The bond-issuer under such arrangements is not treated as a trustee of the bond assets.

(4) Profits accruing to the bond-issuer in connection with the bond assets are profits of the bond-issuer and not of the bond-holder (and do not arise to the bond-issuer in a fiduciary or representative capacity).

(5) Payments made by the bond-issuer by way of redemption payment or additional payment are not made in a fiduciary or representative capacity.

(6) The bond-holder is not entitled to relief for capital expenditure in connection with the bond assets.

(7) Expressions used in this section have the same meaning as in section 564G.

564T

(1) Investment bond arrangements are securities for the purposes of the Income Tax Acts (including Chapters 1 to 5 of Part 7 of ITEPA 2003).

(2) For those purposes—

(a) a reference in an enactment to redemption is to be taken as a reference to making the redemption payment, and

(b) a reference in an enactment to interest is to be taken as a reference to alternative finance return.

(3) In subsection (2) “the redemption payment” has the same meaning as in section 564G (see subsection (1)(d)(ii) of that section).

564U

Investment bond arrangements are not—

(a) a unit trust scheme for the purposes of section 1007 of this Act, or

(b) an offshore fund for the purposes of section 354 of TIOPA 2010 so far as relating to income tax.

Other rules

564V

(1) If under purchase and resale arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Income Tax Acts (apart from section 564C).

(2) If under diminishing shared ownership arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Income Tax Acts (apart from section 564D or 564DA).

(3) If under investment bond arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Income Tax Acts (apart from section 564G).

(4) Subsections (1) to (3) do not affect the operation of any provision of the Tax Acts or TCGA 1992 that provides that the consideration for a sale or purchase is taken for any purpose to be an amount other than the actual consideration.

564W

Diminishing shared ownership arrangements are not treated as a partnership for the purposes of the Income Tax Acts.

564X

(1) The principal under profit share agency arrangements is not treated for the purposes of the Income Tax Acts as entitled to profits to which the agent is entitled in accordance with section 564F(1)(e).

(2) And the agent under such arrangements is treated for those purposes as entitled to those profits and the profits specified in section 564F(1)(d).

(3) In this section “the principal” and “the agent” are to be read in accordance with section 564F.

564Y

(1) This section applies if arrangements to which section 564H (provision not at arm's length: exclusion of arrangements from sections 564C to 564G) applies would, but for that section, be alternative finance arrangements.

(2) A person paying relevant return under the arrangements is not entitled to—

(a) any deduction in respect of the relevant return in calculating profits or other income for income tax purposes, or

(b) any deduction in respect of the relevant return in calculating net income.

(3) In this section “relevant return” has the same meaning as in section 564H (see subsection (3) of that section).

Part 11A — Leasing arrangements: finance leases and loans

Chapter 1 — Introduction

Introduction

614A

(1) This Part makes provision for the purposes of income tax about the taxation of leasing arrangements.

(2) Chapter 2 makes provision in relation to certain arrangements involving the lease of assets where the conditions in section 614BC are or have been met, so far as the lease is not regarded as a long-funding lease for the purposes of Part 2 of CAA 2001 in accordance with Chapter 6A of that Part (see sections 614BB to 614BE).

(3) Chapter 3 makes provision in relation to arrangements involving the lease of assets that are not within Chapter 2, so far as the lease is not so regarded (see sections 614C and 614CB).

(4) The remaining provisions of this Chapter explain some expressions about rent for the purposes of this Part.

(5) Chapter 4 contains further provisions supplementing this Part, including more about its interpretation.

Meaning of expressions about rent

614AA

(1) For the purposes of this Part, the “normal rent” in respect of a lease for a period of account of the lessor (“L”) is the amount specified in subsection (2).

(2) That amount is the amount that L would, apart from this Part, bring into account as rent from the lease that arises to L in that period of account for the purpose of determining L's liability to income tax for the related tax year or years.

(3) For the meaning of “related tax year”, see section 614DB(4).

614AB

(1) For the purposes of this Part, the “accountancy rental earnings” in respect of a lease for a period of account of the lessor (“L”) is the greatest of the amounts specified in subsection (2).

(2) Those amounts are—

(a) the rental earnings for that period in respect of the lease in L's case,

(b) the rental earnings for that period in respect of the lease in the case of a person connected with L, and

(c) the rental earnings for that period in respect of the lease for the purposes of consolidated group accounts of a group of companies of which L is a member.

(3) For the meaning of “the rental earnings”, see section 614AC.

614AC

(1) In this Part “the rental earnings” for any period in respect of a lease of an asset in the case of any person or any consolidated group accounts is the amount specified in subsection (2).

(2) That amount is the amount that falls for accounting purposes to be treated, in accordance with generally accepted accounting practice, as the gross return for that period on investment in respect of a finance lease or loan in respect of the leasing arrangements.

(3) For the meaning of “for accounting purposes”, see section 614DG.

Chapter 2 — Finance leases with return in capital form

Introduction

614B

(1) This Chapter applies to arrangements involving the lease of an asset that meet conditions A and B.

(2) Condition A is that in accordance with generally accepted accounting practice the arrangements fall to be treated as a finance lease or loan.

(3) Condition B is that the effect of the arrangements is that some or all of the return on investment in respect of the finance lease or loan—

(a) is or may be in the form of a sum that is not rent, and

(b) would not, apart from this Part and Part 21 of CTA 2010, be wholly brought into account for tax purposes as rent from the lease of the asset.

(4) It does not matter—

(a) when the arrangements are or have been entered into, or

(b) whether they are or have been entered into by companies or other persons.

614BA

(1) This section sets out the main purposes of this Chapter where there are any arrangements to which this Chapter applies.

(2) The first main purpose is to charge any person entitled to the lessor's interest under the lease of the asset to income tax on amounts of income determined as mentioned in subsections (3) and (4).

(3) The amounts referred to in subsection (2) are determined by reference to the amounts that fall for accounting purposes to be treated, in accordance with generally accepted accounting practice, as the income return on and after 26 November 1996 on investment in respect of the finance lease or loan.

(4) The amounts referred to in subsection (2) are also determined taking into account the substance of the matter as a whole, including, in particular, the state of affairs—

(a) as between connected persons, or

(b) within a group of companies,

as reflected or falling to be reflected in accounts of any of those persons or in consolidated group accounts.

(5) The second main purpose of this Chapter is, if the sum mentioned in section 614B(3)(a) that is not rent falls due, to recover by reference to that sum the whole or any part of the capital expenditure reliefs.

(6) In subsection (5) “the capital expenditure reliefs” means any reliefs, allowances or deductions that are or have been allowed or made in respect of capital expenditure incurred in respect of the leased asset.

Leases to which this Chapter applies

614BB

(1) This Chapter applies if—

(a) a lease of an asset is or has been granted, and

(b) the conditions in section 614BC are or have been met in relation to the lease at some time in a period of account of the current lessor.

(2) But this Chapter does not apply so far as, in relation to the current lessor, the lease falls to be regarded as a long funding lease for the purposes of Part 2 of CAA 2001 (plant and machinery allowances) in accordance with Chapter 6A of that Part (interpretation of provisions about long funding leases) (see section 70G of that Act).

(3) If the conditions in section 614BC have been met at some time in a period of account of the person who was at that time the lessor, they are taken to continue to be met for the purposes of this Chapter unless and until one of the conditions in subsection (4) is met.

(4) The conditions are that—

(a) the asset ceases to be leased under the lease, or

(b) the lessor's interest under the lease is assigned to a person who is not connected with any of the persons specified in subsection (5).

(5) Those persons are—

(a) the assignor,

(b) any person who was the lessor at some time before the assignment, and

(c) any person who at some time after the assignment becomes the lessor pursuant to arrangements made by a person who was the lessor, or was connected with the lessor, at some time before the assignment.

(6) If at any time the person who was the lessor at that time was a person within the charge to corporation tax on income, the reference in subsection (3) to the conditions in section 614BC having been met at that time includes a reference to the conditions in section 902 of CTA 2010 having been so met.

(7) Nothing in subsection (3) prevents this Chapter from applying again in relation to the lease where the lessor's interest is assigned if the conditions for its application are met after the assignment.

614BC

(1) This section sets out the conditions required by section 614BB(1) to be met for this Chapter to apply (conditions A to E).

(2) Condition A is that at the relevant time—

(a) the leasing arrangements fall for accounting purposes to be treated, in accordance with generally accepted accounting practice, as a finance lease or a loan, and

(b) subsection (3) or (4) applies.

(3) This subsection applies if the lessor (“L”), or a person connected with L, falls for accounting purposes to be treated, in accordance with generally accepted accounting practice, as the finance lessor in relation to the finance lease or loan.

(4) This subsection applies if the finance lease or loan falls for accounting purposes to be treated, in accordance with generally accepted accounting practice, as subsisting for the purposes of consolidated group accounts of a group of companies of which L is a member.

(5) Condition B is that, under the leasing arrangements, there is or may be payable to L, or to a person connected with L, a sum (a “major lump sum”) that is not rent but falls for accounting purposes to be treated, in accordance with generally accepted accounting practice—

(a) as to part, as repayment of some or all of the investment in respect of a finance lease or loan, and

(b) as to part, as a return on investment in respect of a finance lease or loan.

(6) Condition C is that not all of that part of the sum that falls within subsection (5)(b) would, apart from this Chapter, fall to be brought into account for income tax purposes in tax years ending with the relevant tax year as the normal rent from the lease for periods of account of L.

(7) Condition D is that, in relation to L at the relevant time—

(a) the period of account of L in which the relevant time falls, or

(b) an earlier period of account of L during which L was the lessor,

is a period of account for which the accountancy rental earnings in respect of the lease exceed the normal rent for the period.

(8) Condition E is that at the relevant time—

(a) arrangements within section 614BE(1) exist, or

(b) paragraph (a) does not apply and circumstances within section 614BE(3) exist.

(9) Section 614BD supplements this section.

614BD

(1) In section 614BC—

“the relevant tax year”, in relation to a major lump sum, means—the tax year which is related to the period of account of the lessor (“L”) in which the major lump sum is or may be payable in accordance with the leasing arrangements, orif there are two or more such tax years, the latest of them, and

“the relevant time” means the time as at which it must be determined for the purposes of section 614BB(1) or (3) whether the conditions in section 614BC are or, as the case may be, were met.

(2) For the meaning of a tax year being related to a period of account, see section 614DB(4).

(3) Subsection (4) applies for determining the normal rent for a period of account for the purpose of determining whether condition D in section 614BC is met as respects L unless subsection (5) applies.

(4) Rent that falls to be brought into account for income tax purposes as it falls due is treated—

(a) as accruing evenly throughout the period to which, in accordance with the terms of the lease, each payment falling due relates, and

(b) as falling due as it so accrues.

(5) This subsection applies if any such payment as is mentioned in subsection (4)(a) falls due more than 12 months after the time at which any of the rent to which that payment relates is treated as accruing under subsection (4)(a).

614BE

(1) The arrangements referred to in section 614BC(8)(a) are arrangements under which—

(a) the lessee or a person connected with the lessee may acquire, whether directly or indirectly, the leased asset or an asset representing the leased asset from the lessor or a person connected with the lessor, and

(b) in connection with that acquisition, the lessor or a person connected with the lessor may receive, whether directly or indirectly, a qualifying lump sum from the lessee or a person connected with the lessee.

(2) In this section “qualifying lump sum” means any sum that is not rent but at least part of which would fall for accounting purposes to be treated, in accordance with generally accepted accounting practice, as a return on investment in respect of a finance lease or loan.

(3) The circumstances referred to in section 614BC(8)(b) are circumstances which make it more likely—

(a) that the events described in subsection (4) will occur, than

(b) that the event described in subsection (5) will occur.

(4) The events mentioned in subsection (3)(a) are—

(a) that the lessee or a person connected with the lessee will acquire, whether directly or indirectly, the leased asset or an asset representing the leased asset from the lessor or a person connected with the lessor, and

(b) that, in connection with that acquisition, the lessor or a person connected with the lessor will receive, whether directly or indirectly, a qualifying lump sum from the lessee or a person connected with the lessee.

(5) The event mentioned in subsection (3)(b) is that, before any such acquisition as is mentioned in subsection (4) takes place, the leased asset or, as the case may be, the asset representing the leased asset, will have been acquired, in a sale on the open market, by an independent third party.

(6) In subsection (5) “independent third party” means a person who—

(a) is not the lessor or the lessee, and

(b) is not connected with either of them.

(7) For the meaning of an asset representing the leased asset, see section 614DD.

Current lessor taxed by reference to accountancy rental earnings

614BF

(1) This section applies if, in the case of any period of account of the current lessor (“L”)—

(a) this Chapter applies in relation to the lease, and

(b) the accountancy rental earnings in respect of the lease for that period of account exceed the normal rent for that period.

(2) For income tax purposes, L is treated as if in that period of account L had been entitled to, and there had arisen to L, rent from the lease of an amount equal to those accountancy rental earnings (instead of the normal rent referred to in subsection (1)(b)).

(3) Such rent from the lease of an asset is treated for income tax purposes—

(a) as if it had accrued at an even rate throughout so much of the period of account as falls within the period for which the asset is leased, and

(b) as if L had become entitled to it as it accrued.

Reduction of taxable rent by cumulative rental excesses

614BG

(1) This section and sections 614BH to 614BK provide for reductions of the taxable rent of a current lessor (“L”) under a lease to which this Chapter applies.

(2) In this section and sections 614BH to 614BK “taxable rent”, in relation to a period of account of L, means the amount that would, apart from those sections, be treated for income tax purposes as rent from the lease that arises to L in that period of account for the purpose of determining L's liability to tax for the related tax year or years.

(3) The reductions of taxable rent under sections 614BH to 614BK depend on there being—

(a) a cumulative accountancy rental excess for the period of account of L in question, or

(b) a cumulative normal rental excess for the period of account of L in question.

(4) For the meaning of “cumulative accountancy rental excess” and “cumulative normal rental excess”, see sections 614BH and 614BJ respectively.

614BH

(1) For the purposes of this Chapter, there is an “accountancy rental excess” in relation to the lease for a period of account of the current lessor (“L”) if the taxable rent in relation to the lease for the period is as a result of section 614BF (current lessor taxed by reference to accountancy rental earnings) an amount equal to the accountancy rental earnings.

(2) The amount of the accountancy rental excess for the period is equal to the difference between the accountancy rental earnings for the period and the normal rent for the period.

(3) But if the taxable rent for the period is reduced under section 614BK (reduction of taxable rent by the cumulative normal rental excess), there is only an accountancy rental excess for the period if—

(a) the accountancy rental earnings, reduced by an amount equal to the reduction under that section, exceed

(b) the normal rent.

(4) And in that case the amount of the accountancy rental excess for the period is equal to that excess.

(5) In this Chapter the “cumulative accountancy rental excess”, in relation to the lease and a period of account of L, means so much of the total of the accountancy rental excesses for previous periods of account of L (as increased under section 614BM: recovery of bad debts following reduction under section 614BL) as has not been—

(a) set off under section 614BI (reduction of taxable rent by the cumulative accountancy rental excess) against the taxable rent for any such previous period,

(b) reduced under section 614BL (relief for bad debts: reduction of cumulative accountancy rental excess), or

(c) set off under section 37A of TCGA 1992 (consideration on disposal of certain leases) against the consideration for a disposal.

614BI

(1) This section applies if a period of account of the current lessor (“L”) is one for which—

(a) the normal rent in relation to the lease exceeds the accountancy rental earnings, and

(b) there is a cumulative accountancy rental excess.

(2) The taxable rent for the period of account is reduced by setting against it the cumulative accountancy rental excess (but not so as to reduce that rent below the amount of the accountancy rental earnings).

(3) But see section 614BL(3) and (4) (under which the amount of the cumulative accountancy rental excess which may be set against the taxable rent is limited in some circumstances).

614BJ

(1) For the purposes of this Chapter, there is a “normal rental excess” in relation to a lease for any period of account of the current lessor (“L”) throughout which the leasing arrangements fall for accounting purposes to be treated, in accordance with generally accepted accounting practice, as a finance lease or loan if—

(a) the normal rent for the period, exceeds

(b) the accountancy rental earnings for the period.

(2) The amount of the normal rental excess for that period is equal to that excess.

(3) But if the taxable rent for the period is reduced under section 614BI (reduction of taxable rent by the cumulative accountancy rental excess), there is only a normal rental excess for the period if—

(a) the normal rent, reduced by an amount equal to the reduction under that section, exceeds

(b) the accountancy rental earnings.

(4) And in that case the amount of the normal rental excess for the period is equal to that excess.

(5) In this Chapter “cumulative normal rental excess”, in relation to the lease and a period of account of L, means so much of the total of the normal rental excesses for previous periods of account of L (as increased under section 614BO: recovery of bad debts following reduction under section 614BN) as has not been—

(a) set off under section 614BK (reduction of taxable rent by the cumulative normal rental excess) against the taxable rent for any such previous period, or

(b) reduced under section 614BN (relief for bad debts: reduction of cumulative normal rental excess).

614BK

(1) This section applies if a period of account of the current lessor (“L”) is one for which—

(a) the taxable rent in relation to the lease is as a result of section 614BF (current lessor taxed by reference to accountancy rental earnings) an amount equal to the accountancy rental earnings, and

(b) there is a cumulative normal rental excess.

(2) The taxable rent for the period of account is reduced by setting against it the cumulative normal rental excess (but not so as to reduce that rent below the amount of the normal rent).

(3) But see section 614BN(3) and (4) (under which the amount of the cumulative normal rental excess which may be set against the taxable rent is limited in some circumstances).

Relief for bad debts by reduction of cumulative rental excesses

614BL

(1) This section applies if in relation to the lease for any period of account of the current lessor—

(a) there is a cumulative accountancy rental excess, and

(b) a bad debt deduction falls to be made in respect of rent from the lease.

(2) If for that period—

(a) the accountancy rental earnings in relation to the lease exceed the normal rent, and

(b) the amount of the bad debt deduction exceeds the amount of the accountancy rental earnings,

the cumulative accountancy rental excess for that period is reduced by the amount of the excess of that deduction over those earnings (but not so as to reduce the amount of that rental excess below nil).

(3) Subsections (4) and (5) apply if for that period the accountancy rental earnings in relation to the lease do not exceed the normal rent.

(4) The amount of the cumulative accountancy rental excess that may be set against the taxable rent for that period under section 614BI(2) (reduction of taxable rent by the cumulative accountancy rental excess) is limited to the amount (if any) by which the normal rent exceeds the bad debt deduction.

(5) If for that period the bad debt deduction exceeds the normal rent, the cumulative accountancy rental excess for that period is reduced by the amount of that excess (but not so as to reduce the amount of that rental excess below nil).

(6) In this section—

“bad debt deduction”, in relation to a period of account of the lessor, means the total of any sums falling within section 35(1)(a), (b) or (c) of ITTOIA 2005 in respect of amounts in respect of rents from the lease of the asset which are deductible as expenses for that period, and

“taxable rent” has the meaning given in section 614BG(2).

614BM

(1) This section applies if in relation to the lease—

(a) the cumulative accountancy rental excess for any period of account of the current lessor (“L”) has been reduced under section 614BL(2) or (5) because of a bad debt deduction,

(b) in a subsequent period of account of L, an amount (“the relevant credit”) is recovered or credited in respect of the amount which constituted the bad debt deduction, and

(2) The cumulative accountancy rental excess for the subsequent period is increased.

(3) If the relevant credit does not exceed the total of the reductions under section 614BL(2) or (5), the increase is by the relevant credit.

(4) Otherwise, the increase is limited to that total.

(5) In this section “bad debt deduction” has the meaning given in section 614BL(6).

614BN

(1) This section applies if in relation to the lease for any period of account of the current lessor—

(a) there is a cumulative normal rental excess, and

(b) a bad debt deduction falls to be made in respect of rent from the lease.

(2) If for that period—

(a) the accountancy rental earnings in the case of the lease do not exceed the normal rent, and

(b) the amount of the bad debt deduction exceeds the amount of that rent,

the cumulative normal rental excess for that period is reduced by the amount of the excess of that deduction over that rent (but not so as to reduce the amount of that rental excess below nil).

(3) Subsections (4) and (5) apply if for that period the accountancy rental earnings in relation to the lease exceed the normal rent.

(4) The amount of the cumulative normal rental excess that may be set against the taxable rent for that period under section 614BK (reduction of taxable rent by the cumulative normal rental excess) is limited to the amount (if any) by which the accountancy rental earnings exceed the bad debt deduction.

(5) If for that period the bad debt deduction exceeds the accountancy rental earnings, the cumulative normal rental excess for that period is reduced by the amount of the excess (but not so as to reduce the amount of that rental excess below nil).

(6) In this section, in relation to a period of account of the lessor—

“bad debt deduction” has the meaning given in section 614BL(6), and

“taxable rent” has the meaning given in section 614BG(2).

614BO

(1) This section applies if in relation to the lease—

(a) the cumulative normal rental excess for any period of account of the current lessor (“L”) has been reduced under section 614BN(2) or (5) as a result of a bad debt deduction,

(b) in a subsequent period of account of L, an amount (“the relevant credit”) is recovered or credited in respect of the amount which constituted the bad debt deduction, and

(2) The cumulative normal rental excess for the subsequent period is increased.

(3) If the relevant credit does not exceed the total of the reductions under section 614BN(2) or (5), the increase is by the relevant credit.

(4) Otherwise, the increase is limited to that total.

(5) In this section “bad debt deduction” has the meaning given in section 614BL(6).

Effect of disposals

614BP

(1) This section applies if the current lessor (“L”) or a person connected with L disposes of—

(a) the lessor's interest under the lease,

(b) the leased asset, or

(2) This Part has effect as if immediately before the disposal a period of account of L ended and another began.

(3) If—

(a) two or more disposals within subsection (1) are made at the same time, and

(b) there is any cumulative accountancy rental excess for any period of account of L in which the disposal occurs,

subsection (2) has effect in relation to those disposals as if they together constituted a single disposal.

(4) In this section “dispose” and “disposal” are to be read in accordance with TCGA 1992.

(5) In cases where there is any cumulative accountancy rental excess for L's period of account in which the disposal occurs, section 37A of that Act (consideration on disposal of certain leases) makes provision for the purposes of that Act about the reduction of the consideration for the disposal by that excess in determining if a gain has accrued.

614BQ

(1) This section applies if—

(a) the current lessor (“L”) assigns the lessor's interest under the lease, and

(b) the assignment is a disposal on which, as a result of any of the no gain/no loss provisions, neither a gain nor a loss accrues.

(2) This Part has effect as if—

(a) a period of account of L (“L's period”) ended with the assignment, and

(b) a period of account of the assignee (“A's period”) began with the assignment.

(3) Any cumulative accountancy rental excess for L's period becomes the cumulative accountancy rental excess for A's period.

(4) Any cumulative normal rental excess for L's period becomes the cumulative normal rental excess for A's period.

(5) If the assignee is a company subject to the charge to corporation tax on income, so far as this section relates to the assignee, it applies for the purposes of Part 21 of CTA 2010 as it would otherwise apply for the purposes of this Part.

(6) In this section “the no gain/no loss provisions” has the same meaning as in TCGA 1992 (see section 288(3A) of that Act).

Capital allowances: claw-back of major lump sum

614BR

(1) This section and sections 614BS to 614BW apply if an occasion occurs on which a major lump sum falls to be paid in relation to the lease of the asset.

(2) In those sections the occasion is called “the relevant occasion”.

614BS

(1) This section applies if capital expenditure incurred by the current lessor (“L”) in respect of the leased asset is or has been taken into account for the purposes of any allowance or charge under—

(a) Part 2 of CAA 2001 (plant and machinery allowances),

(b) Part 5 of that Act (mineral extraction allowances), or

(2) The Part of that Act in question (“the relevant Part”) has effect as if the relevant occasion were an event (“the relevant event”) as a result of which a disposal value is to be brought into account of an amount equal to the amount or value of the major lump sum (but subject to any applicable limiting provision).

(3) In this section “limiting provision” means a provision to the effect that the disposal value of the asset in question is not to exceed an amount (“the limit”) described by reference to capital expenditure incurred in respect of the asset.

(4) Subsection (5) applies if—

(a) as a result of subsection (2), a disposal value (“the relevant disposal value”) falls or has fallen to be brought into account by a person in respect of the leased asset for the purposes of the relevant Part, and

(b) a limiting provision has effect in the case of that Part.

(5) The limiting provision has effect (so far as it would not otherwise do so), in relation to the relevant disposal value and any simultaneous or later disposal value, as if—

(a) it did not limit any particular disposal value, but

(b) it limited the total amount of all the disposal values brought into account for the purposes of the relevant Part by L in respect of the leased asset.

(6) In subsection (5) “simultaneous or later disposal value” means any disposal value which falls to be brought into account by L in respect of the leased asset as a result of any event occurring at the same time as, or later than, the relevant event.

614BT

(1) This section applies if any allowance is or has been given in respect of capital expenditure incurred by the current lessor (“L”) in respect of the leased asset under any provision of CAA 2001 other than—

(a) Part 2 of CAA 2001 (plant and machinery allowances),

(b) Part 5 of that Act (mineral extraction allowances), or

(2) The amount specified in subsection (3) is treated, in relation to L, as if it were a balancing charge to be made on L for the chargeable period in which the relevant occasion falls.

(3) That amount is an amount equal to—

(a) the total of the allowances given as mentioned in subsection (1) (so far as not previously recovered or withdrawn), or

(b) if it is less, the amount or value of the major lump sum.

(4) In this section “chargeable period” has the meaning given by section 6 of CAA 2001.

614BU

(1) This section applies if any deduction is or has been allowed to the current lessor (“L”) in respect of capital expenditure incurred in connection with the leased asset as a result of—

(a) section 165 or 168 of ITTOIA 2005 (preparation and restoration expenditure in relation to waste disposal site), or

(b) section 170 of that Act (cemeteries and crematoria: deduction for capital expenditure).

(2) L is treated as if trading receipts arose to L from the trade in question on the relevant occasion.

(3) The amount of those receipts is equal to the lesser of—

(a) the amount or value of the major lump sum, and

(b) the deductions previously allowed.

614BV

(1) This section applies if—

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Income Tax Act 2007

Maximum risk finance investments when relevant holding is issued requirement

504A

835A

The minimum investment on further issue condition

Time as from which VCT approval has effect

384A

Chapter 5A — Transfers of income streams

809AZA

809AZB

809AZC

809AZD

809AZE

809AZF

809AZG

Chapter 1A — Exemption for persons not domiciled in United Kingdom

828A

828B

828C

828D

979A

Overview of Income Tax Acts

Limit on reliefs in any tax year not to exceed cap for tax year

Limit on reliefs in any tax year not to exceed cap for tax year

Maximum risk finance investments at the issue date requirement

No previous other risk capital scheme investments

Cases where maximum EIS relief not obtained

Cases where maximum SEIS relief not obtained

The property managing subsidiaries requirement

Alternative requirements for the giving of approval

Overview of charges to income tax

Income charged at the ... basic , higher and additional rates: individuals

Tax reductions

Use of trade-related interest and dividends if trade profits insufficient

Limit on Step 2 deductions

Calculation of net income at Step 2 for low income estates and trusts

Put options

Cases where maximum EIS relief not obtained

Amount of repayments etc where there is more than one issue of shares

Maximum relief not obtained for share issue

Restriction on withdrawal of relief under section 224

Maximum risk finance investments at the issue date requirement

Value received where part of share issue treated as made in previous tax year

Alternative finance arrangements

372A

372B

372C

372D

Payments constituting income of beneficiary (other than employment income)

Payments constituting employment income of beneficiary

496A

496B

Tax pool

Part 10A — Alternative finance arrangements

Introduction

564A

564B

Arrangements that are alternative finance arrangements

564C

564D

564E

564F

564G

564H

Meaning of “alternative finance return”

564I

564J

564K

564L

Treatment of alternative finance return as interest etc

564M

564N

564O

564P

564Q

Special rules for investment bond arrangements

564R

564S

564T

564U