Finance Act 2006

96 Diminishing shared ownership

(1) In section 46(1) of FA 2005 (alternative finance arrangements: definition) after “47” insert “, 47A,”.

(2) In section 47 of FA 2005 (alternative finance return)—

(a) omit subsection (5),

(b) in subsections (6) and (7) after “is to be taken” insert “for the purposes of this Chapter”, and

(c) in the heading for “alternative finance return” substitute “purchase and re-sale”.

(3) After section 47 of FA 2005 insert—

“47A Alternative finance arrangements: diminishing shared ownership

(1) Subject to section 52, arrangements fall within this section if under them—

(a) a financial institution acquires a beneficial interest in an asset, and

(b) another person (“the eventual owner”)—

(i) also acquires a beneficial interest in the asset,

(ii) is to make payments to the financial institution amounting in aggregate to the consideration paid for the acquisition of its beneficial interest,

(iii) is to acquire the financial institution’s beneficial interest (whether or not in stages) as a result of those payments,

(iv) is to make other payments to the financial institution (whether in pursuance of a lease forming part of the arrangements, or otherwise),

(v) has the exclusive right to occupy or otherwise use the asset,

(vi) is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, any increase in the asset’s value).

(2) For the purposes of subsection (1)(a) it is immaterial—

(a) whether or not the financial institution acquires its beneficial interest from the eventual owner,

(b) whether the eventual owner or another person other than the financial institution also has a beneficial interest in the asset, and

(c) whether or not the financial institution also has a legal interest in the asset.

(3) Subsection (1)(b)(v) does not prevent the eventual owner from granting an interest or right in relation to the asset to someone other than—

(a) the financial institution,

(b) a person controlled by the financial institution within the meaning of section 840 of ICTA, and

(c) a person controlled by a person who also controls the financial institution, in each case within the meaning of section 840 of ICTA;

provided that the grant is not required by the financial institution or by arrangements to which the financial institution is party.

(4) Subsection (1)(b)(vi) does not prevent the financial institution from having responsibility for, or a share in any loss arising out of, any reduction in the asset’s value (and subsection (1)(b)(ii) is subject to this subsection).

(5) Payments by the eventual owner under arrangements to which this section applies are alternative finance return for the purposes of this Chapter except in so far as they amount to—

(a) payments of the kind described in subsection (1)(b)(ii), or

(b) payments in respect of any arrangement fee or legal or other costs or expenses which the eventual owner is required under the arrangements to pay.

(6) Arrangements to which this section applies shall not be treated as a partnership for the purposes of the Taxes Acts (within the meaning of the Taxes Management Act 1970).”

(4) In section 50 of FA 2005 (treatment of alternative finance arrangements: companies)—

(a) in subsection (1) after “section 47” insert “or 47A”,

(b) at the beginning of subsection (1)(b) add “in the case of arrangements within section 47,”, and

(c) after subsection (1)(b) insert—

“(ba) in the case of arrangements within section 47A, the consideration paid by the financial institution for the acquisition of its beneficial interest were the amount of a loan made (as the case requires) to the company by, or by the company to, the other party to the arrangements,”.

(5) In section 52 of FA 2005 (provision not at arm’s length)—

(a) in subsection (1)(a) after “47” insert “, 47A”,

(b) in subsection (3) after “47” insert “, 47A”, and

(c) in subsection (4) for “47,” substitute “47 or 47A,”.

(6) In section 53 of FA 2005 (sale and purchase of asset)—

(a) in subsection (1) after “47” insert “or 47A”,

(b) after subsection (2) add—

“(3) In the application of this section to section 47A a reference to the effective return is a reference to the alternative finance return.”, and

(c) in the heading after “47” insert “or 47A”.

(7) In the definition of “alternative finance return” in section 57 of FA 2005 for “section 47(5)” substitute “sections 47(6) and (7) and 47A(5)”.

(8) This section shall have effect in relation to alternative finance arrangements entered into on or after—

(a) 1st April 2006 in relation to corporation tax, and

(b) 6th April 2006 in relation to income tax.