807 Supplementary provision relating to calculation in section 806
(1) This section applies for the purposes of section 806.
(2) For the purposes of Step 1, the amount of a loss made in a tax year that relates to the licence is so much of the loss in the tax year as derives from expenditure incurred in the trade in exploiting the licence.
(3) The amount of the loss that derives from such expenditure is determined on a just and reasonable basis.
(4) For the purposes of Step 1, a loss is a claimed loss if the individual has claimed sideways relief or capital gains relief for the loss.
(5) For the purposes of Step 2, the amount of profits made in a tax year that relates to the licence is so much of the individual's profits from the trade in the tax year as derives from income arising from an agreement related to or containing the licence.
(6) The amount of the profits that derives from such income is determined on a just and reasonable basis.
(1) For the purposes of section 805 any reference to—
(a) a disposal of a licence acquired in carrying on a trade, or
(b) a disposal of a right to income under an agreement related to or containing a licence acquired in carrying on a trade (“a licence-related agreement”),
includes, in particular, any of events A to E.
(2) Event A is the revocation of the licence.
(3) Event B is the disposal, giving up or loss of—
(a) a right under the licence, or
(b) a right to income (or any part of any income) under a licence-related agreement,
by the individual or by a firm in which the individual is a partner.
It does not matter if the right is disposed of, given up or lost as part of a larger disposal, giving up or loss.
(4) Event C is the disposal, giving up or loss of the individual's interest in a firm that has the licence or a right to income under a licence-related agreement (including the dissolution of the firm).
(5) Event D is a default in the payment of income to which—
(a) the individual, or
(b) a firm in which the individual is a partner,
has a right under a licence-related agreement.
(6) Event E is a change in the individual's entitlement to any profits or losses relating to the licence the effect of which is that—
(a) the individual's share of any profits is reduced (including to nil), or
(b) the individual becomes entitled to a share, or a greater share, of any losses without becoming entitled to a corresponding share of profits.
(7) The changes covered by event E include cases where there is an agreement under which the individual is entitled—
(a) to a particular share of any profits or losses relating to the licence in a period (including a nil share), and
(b) to a different share of any such profits or losses in a succeeding period (including a nil share).
(8) In such cases the change in the individual's entitlement is treated for the purposes of section 805 as occurring at the beginning of the succeeding period.
(9) For the purposes of this section—
(a) references to any profits relating to the licence are to any profits deriving to any extent from income to which the individual has a right under a licence-related agreement, and
(b) references to any losses relating to the licence are to losses deriving to any extent from expenditure incurred in exploiting the licence.
(1) References in sections 805 and 806 to an individual carrying on a trade as a non-active partner in an early tax year are to be read as if those sections were contained in Chapter 3 of Part 4 (see, in particular, section 103B).
(2) But for that purpose, section 103B(1)(b) (which contains a requirement that the individual does not carry on the trade as a limited partner at any time during the tax year) is treated as if it were omitted.
(3) For the purposes of sections 805 to 808 an agreement is related to a licence if the agreement and licence are entered into under the same arrangement (regardless of when the agreement or licence is entered into).
(4) For the purposes of sections 805 to 808 an agreement, or part of an agreement, is not prevented from being a licence merely because it imposes an obligation to do a thing (rather than merely gives authority to do it).
References to exploiting a licence are to be read in that light.
(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
(c) section 809AZE (transfer by way of security).
(6) Section 809AZF makes special provision about transfers of partnership shares.
(7) Section 809AZG contains supplementary provisions.
809AZB Value of transferred income stream treated as income
(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.
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
(c) brought into account under CAA 2001.
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).
(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.
(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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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.
(1) This Chapter applies (subject to subsection (2)) if directly or indirectly in consequence of, or otherwise in connection with, arrangements involving a person within the charge to income tax (“the transferor”) and another person (“the transferee”)—
(a) there is, or is in substance, a disposal of a right to relevant receipts by the transferor to the transferee,
(b) the disposal is effected (wholly or partly) by or through a partnership (“the relevant partnership”),
(c) at any time—
(i) the transferor is a member of the relevant partnership or of a partnership associated with the relevant partnership, and
(ii) the transferee is a member of the relevant partnership or of a partnership associated with the relevant partnership, and
(d) the main purpose, or one of the main purposes, of one or more steps taken in effecting the disposal is the obtaining of a tax advantage for any person.
(2) This Chapter does not apply if—
(a) the transferor is the spouse or civil partner of the transferee and they are living together, or
(b) the transferor is a brother, sister, ancestor or lineal descendant of the transferee.
(3) In subsection (1)(a) the reference to a disposal of a right to relevant receipts includes anything constituting a disposal of such a right for the purposes of TCGA 1992.
(4) For the purposes of subsection (1)(b) the disposal might, in particular, be effected by an acquisition or disposal of, or an increase or decrease in, an interest in the relevant partnership (including a share of the profits or assets of the relevant partnership or an interest in such a share).
(5) For the purposes of subsection (1)(c) it does not matter if the transferor and the transferee are not members of a partnership as mentioned at the same time.
(6) For the purposes of subsection (1)(c) a partnership is “associated” with the relevant partnership if—
(a) it is a member of the relevant partnership, or
(b) it is a member of a partnership which is associated with the relevant partnership (whether by virtue of paragraph (a) or this paragraph).
(7) In subsections (1)(c) and (5) references to the transferor include a person connected with the transferor and references to the transferee include a person connected with the transferee.
(8) In this Chapter—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
“partnership” includes a limited liability partnership whether or not section 863(1) of ITTOIA 2005 applies in relation to it,
“relevant receipts” means any income—
which (but for the disposal) would be charged to income tax as income of the transferor (whether directly or as a member of a partnership), or
which (but for the disposal) would be brought into account as income in calculating profits of the transferor (whether directly or as a member of a partnership) for income tax purposes, and
“tax advantage” means a tax advantage, as defined in section 1139 of CTA 2010, in relation to income tax or the charge to corporation tax on income.
(1) The relevant amount 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 as income of the transferor, or
(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes,
but for the disposal.
(2) In subsection (1) “the relevant amount” is to be read in accordance with section 809AZB(2) and section 809AZB(3) to (6) applies for the purpose of determining when income under subsection (1) is treated as arising.
(3) For this purpose, in section 809AZB(2) to (6) references to the transfer of the right are to be read as references to the disposal of the right.
(4) If, apart from this subsection and section 809DZB(3)—
(a) both this Chapter and Chapter 5D would apply in relation to the disposal, and
(b) Chapter 5D would give a greater amount of income of the transferor chargeable to income tax,
this Chapter is not to apply in relation to the disposal.
(1) For the purposes of this Chapter an arrangement is a type 1 finance arrangement if conditions A and B are met.
(2) Condition A is that under the arrangement—
(a) a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),
(b) the borrower or a person connected with the borrower makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and
(c) the lender or a person connected with the lender is entitled to payments in respect of the security.
(2A) For the purposes of subsection (2)(c) it does not matter if an entitlement of the lender or a person connected with the lender is subject to any condition.
(3) Condition B is that in accordance with generally accepted accounting practice—
(a) the borrower's accounts for the period in which the advance is received record a financial liability in respect of it, and
(b) the payments reduce the amount of the financial liability.
(4) If the borrower is a partnership the reference to the borrower's accounts includes a reference to the accounts of any member of the partnership.
(5) For the purposes of this section the borrower and the lender are not connected with one another.
809BZB Certain tax consequences not to have effect
(1) This section applies if a type 1 finance arrangement would have the relevant effect (ignoring this section).
(2) The arrangement is not to have that effect.
(3) The relevant effect is that—
(a) an amount of income on which the borrower or a person connected with the borrower would otherwise have been charged to income tax is not so charged,
(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of the borrower or of a person connected with the borrower is not so brought into account, or
(c) the borrower or a person connected with the borrower becomes entitled to an income deduction.
(4) But if the borrower is a partnership the relevant effect is that—
(a) an amount of income on which a member of the partnership would otherwise have been charged to income tax is not so charged,
(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of a member of the partnership is not so brought into account, or
(c) a member of the partnership becomes entitled to an income deduction.
(5) For the purposes of this section the borrower and the lender are not connected with one another.
(6) An income deduction is—
(a) a deduction in calculating income for income tax purposes, or
(b) a deduction from total income.
(1) This section applies if—
(a) a type 1 finance arrangement would not have the relevant effect (ignoring section 809BZB(2)),
(b) that arrangement would not have the corresponding corporation-tax effect (ignoring section 759(2) of CTA 2010), and
(c) the borrower is—
(i) within the charge to income tax, or
(ii) a partnership at least one member of which is within the charge to income tax.
(2) The payments mentioned in section 809BZA(2)(c) must be treated for income tax purposes as income of the borrower payable in respect of the security.
(3) Subsection (2) applies whether or not the payments are also the income of another person for tax purposes.
(4) Subsections (3) to (6) of section 809BZB (meaning of relevant effect) apply for the purposes of this section as for those of that.
(5) In subsection (1)(b) “the corresponding corporation-tax effect” means the relevant effect as defined by section 759(3) to (6) of CTA 2010 (provision for corporation tax corresponding to section 809BZB(3) to (6)).
809BZD Deemed interest if borrower is not a partnership
(1) This section applies if—
(a) there is a type 1 finance arrangement,
(b) the borrower is not a partnership,
(c) the arrangement is prevented by section 809BZB from having the relevant effect in relation to the borrower, or section 809BZC applies to the borrower, and
(d) in accordance with generally accepted accounting practice the borrower's accounts record an amount as a finance charge in respect of the advance.
(2) For income tax purposes the borrower may treat the amount as interest payable on a loan.
(3) If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—
(a) treat the payments mentioned in section 809BZA(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b) treat the interest elements of the payments as paid when the payments are paid, and
(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.
809BZE Deemed interest if borrower is a partnership
(1) This section applies if each of conditions A to C is met.
(2) Condition A is that—
(a) there is a type 1 finance arrangement, and
(b) the borrower is a partnership.
(3) Condition B is that—
(a) the arrangement is prevented by section 809BZB from having the relevant effect in relation to a person who is a member of the partnership, or
(b) section 809BZC applies to the partnership (in which event “the person” in subsections (4) and (5) means the person within the charge to income tax who is a member of the partnership).
(4) Condition C is that in accordance with generally accepted accounting practice the person's accounts, or the partnership's accounts, record an amount as a finance charge in respect of the advance.
(5) For income tax purposes the person may treat the amount as interest payable by the partnership on a loan.
(6) If an amount is treated as interest (“deemed interest”) under subsection (5), to find out when it is paid—
(a) treat the payments mentioned in section 809BZA(2)(c) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b) treat the interest elements of the payments as paid when the payments are paid, and
(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.
(1) For the purposes of this Chapter an arrangement is a type 2 finance arrangement if conditions A and B are met.
(2) Condition A is that—
(a) under the arrangement a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,
(b) the transferor or a person connected with the transferor is a member of the partnership immediately after the disposal (whether or not a member immediately before it),
(c) under the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),
(d) there is a relevant change in relation to the partnership (see section 809BZG), and
(e) under the arrangement the share in the partnership's profits of the person involved in the change is determined by reference (wholly or partly) to payments in respect of the security.
(2A) For the purposes of subsection (2)(e) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.
(3) Condition B is that in accordance with generally accepted accounting practice—
(a) the partnership's accounts for the period in which the advance is received record a financial liability in respect of it, and
(b) the payments reduce the amount of the financial liability.
(4) The reference to the partnership's accounts includes a reference to the transferor's accounts.
(1) For the purposes of this Chapter there is a relevant change in relation to a partnership if condition A or condition B is met.
(2) Condition A is that in connection with the arrangement the lender or a person connected with the lender becomes a member of the partnership at any time.
(3) Condition B is that—
(a) in connection with the arrangement there is at any time a change in a member's share in the partnership's profits, and
(b) the member is the lender or a person connected with the lender or a person who in connection with the arrangement becomes at any time connected with the lender.
(4) An event occurs in connection with the arrangement if it occurs directly or indirectly in consequence of it or otherwise in connection with it.
(5) If there is a relevant change in relation to a partnership, a reference in this Chapter to the person involved in the change is—
(a) if it is condition A that is met, to the person who becomes a member of the partnership, and
(b) if it is condition B that is met, to the member of the partnership in whose share in the partnership's profits there is a change.
809BZH Certain tax consequences not to have effect
(1) This section applies if—
(a) there is a type 2 finance arrangement, and
(b) any relevant change in relation to the partnership would have the relevant effect (ignoring this section).
(2) In such a case—
(a) Part 9 of ITTOIA 2005 (partnerships) is to have effect in relation to the transferor or the person connected with the transferor as if the relevant change in relation to the partnership had not occurred, and
(b) accordingly the finance arrangement is not to have the relevant effect.
(3) The relevant effect is that—
(a) an amount of income on which the transferor or the person connected with the transferor would otherwise have been charged to income tax is not so charged,
(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of the transferor or the person connected with the transferor is not so brought into account, or
(c) the transferor or the person connected with the transferor becomes entitled to an income deduction.
(4) In deciding whether subsection (1)(b) is met assume that amounts of income equal to the payments mentioned in section 809BZF(2)(e) were payable to the partnership before the relevant change in relation to it occurred.
(5) An income deduction is—
(a) a deduction in calculating income for income tax purposes, or
(b) a deduction from total income.
(1) This section applies if—
(a) there is a type 2 finance arrangement,
(b) the transferor is a person within the charge to income tax, and
(c) in accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.
(2) For income tax purposes the transferor may treat the amount as interest payable by the transferor on a loan.
(3) The reference in subsection (1) to the partnership's accounts includes a reference to the transferor's accounts.
(4) If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—
(a) treat the payments mentioned in section 809BZF(2)(e) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b) treat the interest elements of the payments as paid when the payments are paid, and
(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.
(1) For the purposes of this Chapter an arrangement is a type 3 finance arrangement if conditions A and B are met.
(2) Condition A is that—
(a) a partnership holds an asset (“the security”) as a partnership asset at any time before the arrangement is made,
(b) under the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),
(c) there is a relevant change in relation to the partnership (see section 809BZG), and
(d) under the arrangement the share in the partnership's profits of the person involved in the change is determined by reference (wholly or partly) to payments in respect of the security.
(2A) For the purposes of subsection (2)(d) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.
(3) Condition B is that in accordance with generally accepted accounting practice—
(a) the partnership's accounts for the period in which the advance is received record a financial liability in respect of it, and
(b) the payments reduce the amount of the financial liability.
(4) The reference to the partnership's accounts includes a reference to the accounts of any person who is a member of the partnership immediately before the arrangement is made.
809BZK Certain tax consequences not to have effect
(1) This section applies if—
(a) there is a type 3 finance arrangement, and
(b) any relevant change in relation to the partnership would have the relevant effect (ignoring this section).
(2) The relevant effect is that—
(a) an amount of income on which a relevant member would otherwise have been charged to income tax is not so charged,
(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of a relevant member is not so brought into account, or
(c) a relevant member becomes entitled to an income deduction.
(3) A relevant member is a person who—
(a) was a member of the partnership immediately before the relevant change in relation to it occurred, and
(b) is not the lender.
(4) If this section applies—
(a) Part 9 of ITTOIA 2005 (partnerships) is to have effect in relation to any relevant member as if the relevant change in relation to the partnership had not occurred, and
(b) accordingly the finance arrangement is not to have the relevant effect.
(5) In deciding whether subsection (1)(b) is met assume that amounts of income equal to the payments mentioned in section 809BZJ(2)(d) were payable to the partnership before the relevant change in relation to it occurred.
(6) An income deduction is—
(a) a deduction in calculating income for income tax purposes, or
(b) a deduction from total income.
(1) This section applies if—
(a) there is a type 3 finance arrangement,
(b) a relevant member is a person within the charge to income tax, and
(c) in accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.
(2) For income tax purposes the relevant member may treat the amount as interest payable by the partnership on a loan.
(3) The reference in subsection (1) to the partnership's accounts includes a reference to the accounts of any relevant member.
(4) If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—
(a) treat the payments mentioned in section 809BZJ(2)(d) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,
(b) treat the interest elements of the payments as paid when the payments are paid, and
(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.
(5) A relevant member is a person who—
(a) was a member of the partnership immediately before the relevant change in relation to it occurred, and
(b) is not the lender.
(1) Sections 809BZN to 809BZP make provision for finance arrangement codes not to apply in certain circumstances.
(2) For the purposes of those sections each of the following groups of provisions is a finance arrangement code—
(a) sections 809BZA to 809BZE (type 1 arrangements),
(b) sections 809BZF to 809BZI (type 2 arrangements), and
(c) sections 809BZJ to 809BZL (type 3 arrangements).
(1) A finance arrangement code does not apply if the whole of the advance under the arrangement—
(a) is charged to tax on a relevant person as an amount of income,
(b) is brought into account in calculating for tax purposes any income of a relevant person, or
(c) is brought into account for the purposes of any provision of CAA 2001 as a disposal receipt, or proceeds from a balancing event or disposal event, of a relevant person.
(2) Treat subsection (1)(c) as not met if—
(a) the receipt gives rise, or proceeds give rise, to a balancing charge, and
(b) the amount of the balancing charge is limited by any provision of CAA 2001.
(3) A finance arrangement code does not apply if at all times the whole of the advance under the arrangement—
(a) is a debtor relationship of a relevant person for the purposes of Part 5 of CTA 2009 (loan relationships), or
(b) would be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.
(4) In subsection (3) references to a debtor relationship do not include references to a relationship to which Chapter 2 of Part 6 of CTA 2009 applies (relevant non-lending relationships).
(5) A finance arrangement code does not apply so far as—
(a) section 263A of TCGA 1992 applies in relation to the arrangement (agreements for sale and repurchase of securities), or
(b) Schedule 13 to FA 2007 or Chapter 10 of Part 6 of CTA 2009 applies in relation to the arrangement (sale and repurchase of securities, and repos).
(6) A finance arrangement code does not apply so far as Part 10A of this Act, Chapter 4 of Part 4 of TCGA 1992 or Chapter 6 of Part 6 of CTA 2009 has effect in relation to the arrangement (alternative finance arrangements).
(7) A finance arrangement code does not apply so far as the security is plant or machinery which is the subject of a sale and finance leaseback.
(8) For the purposes of subsection (7) apply section 221 of CAA 2001 to determine whether plant or machinery is the subject of a sale and finance leaseback.
(9) A finance arrangement code does not apply so far as sections 228B and 228C of CAA 2001 (finance leaseback) apply in relation to the arrangement.
(9A) A finance arrangement code does not apply if the arrangement is a right-of-use lease—
(a) under which the relevant person is a lessee, and
(b) which, were that person required under generally accepted accounting practice to determine whether the lease falls to be treated in the accounts of that person as a finance lease or loan, would not fall to be so treated.
(9B) In subsection (9A) “right-of-use lease” has the same meaning as in Part 2 of CAA 2001 (see section 70YI(1) of that Act).
(10) Section 809BZO defines a relevant person for the purposes of this section.
(1) This section defines a relevant person for the purposes of section 809BZN.
(2) If (apart from sections 809BZN and 809BZP) sections 809BZA to 809BZE would apply, each of the following is a relevant person—
(a) the borrower, and
(b) a person connected with the borrower or (if the borrower is a partnership) a member of the partnership.
(3) If (apart from sections 809BZN and 809BZP) sections 809BZF to 809BZI would apply, the transferor is a relevant person.
(4) If (apart from sections 809BZN and 809BZP) sections 809BZJ to 809BZL would apply, a relevant member as there defined is a relevant person.
(5) For the purposes of subsection (2)(b) the persons connected with the borrower include any persons who under section 993 (meaning of “connected”) are connected with the borrower.
(1) The Treasury may make regulations prescribing other circumstances in which a finance arrangement code is not to apply.
(2) The regulations may amend sections 809BZN and 809BZO.
(3) The power to make regulations includes—
(a) power to make provision that has effect in relation to times before the making of the regulations (but not times before 6 June 2006),
(b) power to make different provision for different cases or different purposes, and
(c) power to make incidental, supplemental, consequential and transitional provision and savings.
(1) This section applies for the purposes of this Chapter.
(2) A reference to the accounts of a person includes (if the person is a company) a reference to the consolidated group accounts of a group of companies of which it is a member.
(3) In determining whether accounts record an amount as a financial liability in respect of an advance, assume that the period in which the advance is received ended immediately after the receipt of the advance.
(4) If a person does not draw up accounts in accordance with generally accepted accounting practice, assume that the person drew up the accounts in accordance with that practice.
(1) This section applies for the purposes of this Chapter.
(2) A reference to a person receiving an asset includes—
(a) a reference to the person obtaining (directly or indirectly) the value of an asset or otherwise deriving (directly or indirectly) a benefit from it, and
(b) a reference to the discharge (in whole or part) of a liability of the person.
(3) A reference to a disposal of an asset includes a reference to anything constituting a disposal of it for the purposes of TCGA 1992.
(4) A reference to payments in respect of an asset includes—
(a) a reference to payments in respect of another asset substituted for it under the arrangement, and
(b) a reference to obtaining (directly or indirectly) the value of an asset or otherwise deriving (directly or indirectly) a benefit from it.
(1) This section defines a loan or credit transaction for the purposes of sections 809CZB and 809CZC.
(2) A transaction is a loan or credit transaction if it is—
(a) effected with reference to the lending of money or the varying of the terms on which money is lent, or
(b) effected with a view to enabling or facilitating an arrangement concerning the lending of money or the varying of the terms on which money is lent.
(3) A transaction is a loan or credit transaction if it is—
(a) effected with reference to the giving of credit or the varying of the terms on which credit is given, or
(b) effected with a view to enabling or facilitating an arrangement concerning the giving of credit or the varying of the terms on which credit is given.
(4) Subsection (2) has effect whether the transaction is effected—
(a) between the lender and borrower,
(b) between either of them and a person connected with the other, or
(c) between a person connected with one and a person connected with the other.
(5) Subsection (3) has effect whether the transaction is effected—
(a) between the creditor and debtor,
(b) between either of them and a person connected with the other, or
(c) between a person connected with one and a person connected with the other.
809CZB Certain payments treated as yearly interest
(1) This section applies if a loan or credit transaction provides for a payment which is not interest but is—
(a) an annuity or other annual payment falling within Part 5 of ITTOIA 2005 and chargeable to income tax otherwise than as relevant foreign income, or
(b) an annuity or other annual payment which is from a source in the United Kingdom and chargeable to corporation tax under Chapter 7 of Part 10 of CTA 2009 (annual payments not otherwise charged) or regulation 15 of the Unauthorised Unit Trusts (Tax) Regulations 2013.
(2) The payment must be treated for the purposes of the Income Tax Acts as if it were a payment of yearly interest (see, in particular, section 874).
(1) This section applies if—
(a) under a loan or credit transaction a person transfers income arising from property,
(b) the person is not, as a result of Chapter 5B (finance arrangements), chargeable to income tax on the income transferred, and
(c) the person is within the charge to income tax.
(2) In such a case—
(a) income tax is charged under this section,
(b) the tax is charged on an amount equal to the full amount of the income transferred,
(c) the tax is charged for the tax year in which the transfer takes place, and
(d) the person who transfers the income is liable for the tax.
(3) This section does not prejudice the liability of any other person to tax.
(4) For the purposes of this section a person transfers income if the person surrenders, waives or forgoes it.
(5) Subsection (6) applies for the purposes of this section if—
(a) credit is given for the purchase price of property, and
(b) the rights attaching to the property are such that the buyer's rights to income from the property are suspended or restricted during the life of the debt.
(6) The buyer must be treated as surrendering income of an amount equal to the income the buyer in effect forgoes by obtaining the credit.
(7) For the purposes of this section an amount of income payable subject to deduction of income tax must be taken as the amount before deduction of tax.
(1) This Chapter applies if conditions A and B are met.
(2) Condition A is (subject to subsection (3)) that directly or indirectly in consequence of, or otherwise in connection with, arrangements involving a person within the charge to income tax (“the transferor”) and another person (“the transferee”)—
(a) there is, or is in substance, a disposal of an asset (“the transferred asset”) by the transferor to the transferee,
(b) the disposal is effected (wholly or partly) by or through a partnership (“the relevant partnership”),
(c) at any time—
(i) the transferor is a member of the relevant partnership or of a partnership associated with the relevant partnership, and
(ii) the transferee is a member of the relevant partnership or of a partnership associated with the relevant partnership, and
(d) the main purpose, or one of the main purposes, of one or more steps taken in effecting the disposal is the obtaining of a tax advantage for any person.
(3) Condition A is not met if—
(a) the transferor is the spouse or civil partner of the transferee and they are living together, or
(b) the transferor is a brother, sister, ancestor or lineal descendant of the transferee.
(4) In subsection (2)(a) the reference to a disposal of an asset includes anything constituting a disposal of an asset for the purposes of TCGA 1992.
(5) For the purposes of subsection (2)(b) the disposal might, in particular, be effected by an acquisition or disposal of, or an increase or decrease in, an interest in the relevant partnership (including a share of the profits or assets of the relevant partnership or an interest in such a share).
(6) For the purposes of subsection (2)(c) it does not matter if the transferor and the transferee are not members of a partnership as mentioned at the same time.
(7) For the purposes of subsection (2)(c) a partnership is “associated” with the relevant partnership if—
(a) it is a member of the relevant partnership, or
(b) it is a member of a partnership which is associated with the relevant partnership (whether by virtue of paragraph (a) or this paragraph).
(8) In subsections (2)(c) and (6) references to the transferor include a person connected with the transferor and references to the transferee include a person connected with the transferee.
(9) Condition B is that it is reasonable to assume that, had the transferred asset instead been disposed of directly by the transferor to the transferee, the relevant amount (or any part of it)—
(a) would have been chargeable to income tax as income of the transferor, or
(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes.
(10) In this Chapter “the relevant amount” means the amount of the consideration received by the transferor for the disposal.
(11) If the transferor receives—
(a) no consideration for the disposal, or
(b) consideration which is substantially less than the market value of the transferred asset,
assume for the purposes of subsection (10) that the transferor receives consideration of an amount equal to the market value of the transferred asset.
(12) In subsection (11) references to the market value of the transferred asset are to that value at the time of the disposal.
(13) In this Chapter—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
“partnership” includes a limited liability partnership whether or not section 863(1) of ITTOIA 2005 applies in relation to it, and
“tax advantage” means a tax advantage, as defined in section 1139 of CTA 2010, in relation to income tax or the charge to corporation tax on income.
(1) The relevant amount 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 it—
(a) would have been chargeable to income tax as income of the transferor, or
(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes,
as mentioned in section 809DZA(9).
(2) Section 809AZB(3) to (6) applies for the purpose of determining when income under subsection (1) is treated as arising (reading references to the transfer of the right as references to the disposal of the transferred asset).
(3) If, apart from this subsection and section 809AAZB(4)—
(a) both this Chapter and Chapter 5AA would apply in relation to the disposal, and
(b) Chapter 5AA would give the same amount, or a greater amount, of income of the transferor chargeable to income tax,
this Chapter is not to apply in relation to the disposal.
809EZA Disguised investment management fees: charge to income tax
(1) Where one or more disguised fees arise to an individual in a tax year from one or more investment schemes (whether or not by virtue of the same arrangements), the individual is liable for income tax for the tax year in respect of the disguised fee or fees as if—
(a) the individual were carrying on a trade for the tax year,
(b) the disguised fee or fees were the profits of the trade of the tax year, and
(c) the individual were the person receiving or entitled to those profits.
(2) For the purposes of subsection (1) the trade is treated as carried on—
(a) in the United Kingdom, to the extent that the individual performs the relevant services in the United Kingdom;
(b) outside the United Kingdom, to the extent that the individual performs the relevant services outside the United Kingdom;
and for this purpose “the relevant services” means the investment management services by virtue of which the disguised fee or fees arise to the individual in the tax year.
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of this Chapter a “disguised fee” arises to an individual in a tax year from an investment scheme if—
(a) the individual at any time performs or is to perform investment management services directly or indirectly in respect of the scheme under any arrangements,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) under the arrangements, a management fee arises to the individual ... from an investment scheme in the tax year (see section 809EZB), and
(d) some or all of the management fee is untaxed;
and the amount of the disguised fee is so much of the management fee as is untaxed.
(4) For the purposes of subsection (3) the management fee is “untaxed” if and to the extent that the fee would not (apart from this section)—
(a) be charged to tax under ITEPA 2003 as employment income of the individual for any tax year, or
(b) be brought into account in calculating the profits of a trade of the individual for the purposes of income tax for any tax year.
(5) In subsection (4) “trade” includes profession or vocation.
(6) In this Chapter “investment scheme” means—
(a) a collective investment scheme, or
(b) an AIF within the meaning of regulation 3 of the Alternative Investment Fund Managers Regulations 2013, or any part of an AIF (within that meaning), that is not a collective investment scheme.
(7) The references in subsection (6) to a collective investment scheme or AIF include—
(a) arrangements which permit an external investor to participate in investments acquired by the collective investment scheme or AIF without participating in the scheme or AIF itself, and
(b) arrangements under which sums arise to an individual performing investment management services in respect of the collective investment scheme or AIF without those sums arising from the scheme or AIF itself.
809EZB Meaning of “management fee” in section 809EZA
(1) Subject as follows, for the purposes of section 809EZA “management fee” means any sum (including a sum in the form of a loan or advance or an allocation of profits) except so far as the sum constitutes—
(a) a repayment (in whole or part) of an investment made directly or indirectly by the individual , or a person who is connected with the individual, in the scheme,
(b) an arm's length return on an investment made directly or indirectly by the individual , or a person who is connected with the individual, in the scheme, ...
(c) carried interest within the definition “section” 23I of ITTOIA 2005 arising to the individual for the purposes of that section, or,
(d) a sum that would fall within paragraph (c) had it not been deferred as specified in paragraph 9(2)(a) or (b) of Schedule A1 to ITTOIA 2005.
(2) For the purposes of subsection (1)(b) a return on an investment is “an arm's length return” if (and only if)—
(a) the return is on an investment which is of the same kind as investments in the scheme made by external investors,
(b) the return on the investment is reasonably comparable to the return to external investors on those investments, and
(c) the terms governing the return on the investment are reasonably comparable to the terms governing the return to external investors on those investments.
(2A) For the purposes of subsection (2)(b), the return on the investment is reasonably comparable to the return to external investors on the investments referred to in subsection (2)(a) if (and only if)—
(a) the rate of return on the investment is reasonably comparable to the rate of return to external investors on those investments, and
(b) any other factors relevant to determining the size of the return on the investment are reasonably comparable to the factors determining the size of the return to external investors on those investments.
(3) In this Chapter “sum” includes any money or money's worth (and other expressions are to be construed accordingly).
(4) Where—
(a) a sum in the form of money's worth arises to the individual from the scheme in the ordinary course of the scheme's business, and
(b) the individual gives the scheme money in exchange for the sum,
the sum constitutes a “management fee” only to the extent that its market value at the time it arises exceeds the amount of the money given by the individual.
(5) Section 993 (meaning of “connected”) applies for the purposes of this section, but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which the individual is also a partner were not “associates” of the individual for the purposes of sections 450 and 451 of CTA 2010 (“control”).