548 Section 543(1)(i) and (j): investments and loans
(1) Subsection (2) applies if in a tax year a charitable trust—
(a) realises the whole or part of an investment which was made in the tax year and is not an approved charitable investment (see section 558), or
(b) is repaid the whole or part of a loan which was made in the tax year and is neither an investment nor an approved charitable loan (see section 561).
(2) Any further investment or lending in the tax year of the sum realised or repaid, so far as it does not exceed the sum originally invested or lent, is not non-charitable expenditure as a result of section 543(1)(i) or (j).
(1) For the purposes of section 543 “approved charitable investment” means an investment—
(a) that is of a type listed in subsection (2) and is made for an allowable purpose, or
(b) that is not of a type listed in subsection (2) but that is approved under subsection (3).
(2) The following are the types of investment mentioned in subsection (1)(a)—
Type 1
An investment to which section 559 applies.
Type 2
An investment in a common investment fund established under—
section 22 of the Charities Act 1960 (c. 58),
section 24 of the Charities Act 1993 (c. 10),
section 96 of the Charities Act 2011, or
section 25 of the Charities Act (Northern Ireland) 1964.
Type 3
An investment in a common deposit fund established under—
section 22A of the Charities Act 1960, ...
section 25 of the Charities Act 1993 or
section 100 of the Charities Act 2011.
Type 4
An investment in a fund which—
is similar to a fund mentioned in relation to Type 2 or 3, and
is established for the exclusive benefit of charities by or under a provision relating to any particular charities or class of charities contained in an Act.
Type 5
An interest in land, other than an interest held as security for a debt.
Type 6
Any of the following issued by Her Majesty's Government in the United Kingdom—
bills,
Certificates of Tax Deposit,
Savings Certificates, and
Tax Reserve Certificates.
Type 7
Northern Ireland Treasury Bills.
Type 8
Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in a recognised scheme (as defined in section 237(3) of FISMA 2000).
“Units” is defined in section 237(2) of FISMA 2000.
Type 9
A deposit with a bank (as defined in section 991)—
in respect of which interest is payable at a commercial rate, and
which is not made as part of an arrangement under which a loan is made by the bank to some other person.
Type 10
A deposit with—
the National Savings Bank,
a building society, or
a credit institution which operates on mutual principles and which is authorised by an appropriate governmental body in the territory in which the deposit is taken.
Type 11
Certificates of deposit (including uncertificated eligible debt security units as defined in section 986(3)).
...
(3) An officer of Revenue and Customs may approve a loan or other investment under this subsection if satisfied, on a claim, that it is made for an allowable purpose.
(4) For the purposes of this section an investment is made “for an allowable purpose” if it is reasonable to draw the conclusion, from all the circumstances of the case, that the investment is made—
(a) for the sole purpose of benefiting the charitable trust, or
(b) for that purpose and one or more ancillary or incidental purposes,
and is not made for the avoidance of tax (whether by the trust or any other person).
559 Securities which are approved charitable investments
(1) The investments to which this section applies are investments in securities—
(a) issued or guaranteed by Her Majesty’s Government in the United Kingdom or by the government of a member State of the European Union,
(b) issued or guaranteed by the government or a governmental body of any territory or part of a territory,
(c) issued by an international entity listed in the Annex to Council Directive 2003/48/EC (directive on taxation of interest payments),
(d) issued by an entity meeting the four criteria set out at the end of that Annex,
(e) issued by a building society,
(f) issued by a credit institution which operates on mutual principles and which is authorised by an appropriate governmental body in the territory in which the securities are issued,
(g) issued by an open-ended investment company,
(h) issued by a company and listed on a recognised stock exchange, or
(i) issued by a company but not listed on a recognised stock exchange.
(2) Subsection (1) is subject to section 560.
(3) In this section and in section 560—
“debentures” includes—
debenture stock and bonds (whether constituting a charge on assets or not), and
loan stock or notes,
“open-ended investment company” is to be read in accordance with sections 613 and 615 of CTA 2010,
“securities” includes shares and debentures, and
“shares” includes stocks.
(1) Section 559 does not apply to an investment by virtue of subsection (1)(b), (c) or (d) of that section unless—
(a) condition A is met in relation to the securities, and
(b) if the securities are shares or debenture stock, condition B is met in relation to the securities.
But see subsection (3) of this section.
(2) In the case of an investment in securities issued by a company which is incorporated, section 559 does not apply to the investment by virtue of subsection (1)(i) of that section unless—
(a) condition A is met in relation to the securities,
(b) if the securities are shares or debenture stock, condition B is met in relation to the securities, and
(c) condition C is met in relation to the company.
But see subsection (3) of this section.
(3) Conditions A and B need not be met if the securities are traded or quoted on a money market supervised by the government or a governmental body of any territory or part of a territory.
(4) Condition A is that the securities are traded or quoted on—
(a) a recognised investment exchange (as defined in section 285(1) of FISMA 2000), or
(b) an investment exchange which constitutes the principal or only market established in a territory on which securities admitted to official listing are dealt in or traded.
(5) Condition B is that—
(a) the securities are fully paid up,
(b) the terms of the issue of the securities require them to be fully paid up within the period of 9 months beginning with the day after the day on which they are issued, or
(c) the securities are shares issued with no nominal value.
(6) Condition C is that—
(a) throughout the last business day before the investment day, the company has total issued and paid up share capital of at least £1,000,000 (or the equivalent of £1,000,000 in some other currency), and
(b) in each of the five years immediately before the calendar year in which the investment day falls, the company paid a dividend on all the shares issued by the company (excluding any shares issued after the dividend was declared and any shares which by their terms of issue did not rank for dividend for that year).
(7) For the purposes of the words in brackets in subsection (6)(a) use the exchange rate prevailing in the United Kingdom at the close of business on the last business day before the investment day.
(8) For the purposes of subsection (6)(b) a company formed—
(a) to take over the business of another company or other companies, or
(b) to acquire the securities of, or control of, another company or other companies,
is treated as having paid a dividend in any year in which a dividend has been paid by the other company or all of the other companies (as the case may be).
(9) It is irrelevant that the company is formed for other purposes in addition to those mentioned in paragraph (a) or (b) of subsection (8).
(10) In this section—
“business day” means, in relation to an investment, a business day in the place where the investment is made, and
“the investment day” means, in relation to an investment, the day on which the investment is made.
(1) A loan is an approved charitable loan for the purposes of section 543 (meaning of “non-charitable expenditure”) if it meets conditions A and B.
(2) Condition A is that the loan is not made by way of investment.
(3) Condition B is that either—
(a) the loan is made to another charity for charitable purposes only,
(b) it is made to a beneficiary of the charitable trust in the course of carrying out the purposes of the charitable trust,
(c) it consists of money placed on current account with a bank otherwise than as part of an arrangement under which a loan is made by a bank to some other person, or
(d) an officer of Revenue and Customs is satisfied, on a claim, that the loan is made for the benefit of the charitable trust and not for the avoidance of tax (whether by the charitable trust or by some other person).
(4) In this section “bank” has the meaning given by section 991.
562 Excess expenditure treated as non-charitable expenditure of earlier years
(1) This section applies if a charitable trust's non-charitable expenditure for a tax year exceeds its available income and gains for the tax year.
(2) The excess is the charitable trust's “excess expenditure” for the tax year.
(3) The charitable trust's excess expenditure for the tax year is treated for the purposes of this Part as non-charitable expenditure for earlier tax years so far as it can be attributed to earlier tax years under section 563.
(4) For the purposes of this Part a charitable trust's “available income and gains” for a tax year is the sum of—
(a) the charitable trust's total income for the tax year (ignoring any restrictions on the exemptions under this Part which result from sections 539(2) and 541),
(b) any chargeable gains accruing to the charitable trust in the tax year (ignoring any restriction on the exemption under section 256(1) of TCGA 1992 which results from section 256(4) of that Act),
(c) the charitable trust's attributable income and gains for the tax year (see section 540), and
(d) any non-taxable sums received by the charitable trust in the tax year.
(5) In subsection (4) “non-taxable sums” means donations ... and other sums of a similar nature which, ignoring exemptions from income tax under this Part and from capital gains tax under section 256 of TCGA 1992, are not liable to income tax or capital gains tax.
563 Rules for attributing excess expenditure to earlier years
(1) The rules in this section apply for attributing a charitable trust's excess expenditure for a tax year to earlier tax years under section 562.
(2) The excess expenditure for a tax year may be attributed to an earlier tax year if—
(a) the earlier tax year ends not more than 6 years before the end of the tax year in question, and
(b) the charitable trust's available income and gains for the earlier tax year exceed its non-charitable expenditure for the earlier tax year.
(3) If the conditions in subsection (2) are met in the case of more than one earlier tax year, the excess expenditure is to be attributed to a later tax year in priority to an earlier tax year.
(4) The amount of excess expenditure that is to be attributed to an earlier tax year must not be greater than the amount by which the charitable trust's available income and gains for the earlier tax year exceed its non-charitable expenditure for the earlier tax year.
(5) For the purposes of subsections (2)(b) and (4) the charitable trust's non-charitable expenditure for the earlier tax year includes any excess expenditure attributed to the earlier tax year as a result of a previous operation of this section, but ignores the attribution in question.
(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,
(c) deposit 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,
(c) “deposit arrangements” means arrangements to which section 564E 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).
(1) In this Part “financial institution” means—
(a) a bank, as defined by section 991,
(b) a building society,
(c) a wholly-owned subsidiary—
(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
(c) Schedule 2 to that Act.
(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.
(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,
(c) the second purchaser would be regarded, for the purposes of that agreement, as the borrower under it, and
(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).
(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,
(c) the financier would be regarded, for the purposes of that agreement, as the lender under it, and
(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
(c) the financier also has a legal interest in it.
(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), and
has permission under Part 4A of FISMA 2000 to do so.
(1) This section applies to arrangements if under them—
(a) a person (“the customer”) has a beneficial interest in an asset,
(b) the customer disposes of some or all of their beneficial interest in the asset to another person (“the financier”),
(c) either—
(i) the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 564D(7)), or
(ii) the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 564D(1A)),
(d) the customer is to make payments to the financier amounting in aggregate to the consideration paid for the financier acquiring a beneficial interest as mentioned in paragraph (b) (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),
(e) the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,
(f) the customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),
(g) the customer has the exclusive right to occupy or otherwise to use the asset, and
(h) 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).
(2) This section also applies to arrangements which supersede arrangements to which section 564D or subsection (1) of this section applies if under them—
(a) a person (“the financier”) acquires so much of the beneficial interest in an asset mentioned in section 564D(1)(a) or subsection (1)(b) of this section as has not yet been acquired as mentioned in section 564D(1)(d) or subsection (1)(e) of this section,
(b) either—
(i) the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 564D(7)), or
(ii) the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 564D(1A)),
(c) the customer mentioned in section 564D(1) or subsection (1) of this section is to make payments to the financier amounting in aggregate to so much of the payments mentioned in section 564D(1)(c) or subsection (1)(d) of this section as are yet to be paid (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),
(d) that customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,
(e) that 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 that asset (including, in particular, an increase in its value).
(3) For the purposes of subsections (1)(a) and (b) and (2)(a) it does not matter if—
(a) another person who is not the customer or the financier also has a beneficial interest in the asset, or
(b) the financier also has a legal interest in it.
(4) Subsection (1)(g) or (2)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (5) are met.
(5) 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.
(6) Subsection (1)(h) or (2)(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.
(7) 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 564E to 564G).
(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).
(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,
(c) the agent uses money provided by the principal with a view to producing a profit,
(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).
(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”),
(c) they specify a period at the end of which they cease to have effect (“the bond term”),
(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 Provision not at arm's length: exclusion of arrangements from sections 564C to 564G
(1) Arrangements to which this section applies are not—
(a) purchase and resale arrangements,
(b) diminishing shared ownership arrangements,
(c) deposit 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,
(c) any person who is an affected person for the purposes of Part 4 of that Act (“the affected person”) is entitled to—
(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.
(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,
(c) the instalment is a part repayment of the principal of the loan with interest, and
(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 Purchase and resale arrangements where return in foreign currency
(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.
(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.
(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).
564M Treatment of alternative finance return as interest for ITTOIA 2005
(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 Alternative finance return under arrangements for trade or property business purposes
(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 Relief for some alternative finance return under Chapter 1 of Part 8 etc
(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.
564Q Deduction of income tax at source under Part 15
(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
(c) alternative finance return payable under such arrangements were interest.
(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.
(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).
(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.
(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 Arrangements not unit trust scheme or offshore fund
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.
564V Exclusion of alternative finance return from consideration for sale of assets
(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.