Overview
2285.This Chapter is based on sections 774A to 774G to ICTA (structured finance arrangements). It stops a number of schemes which are intended to enable taxpayers to borrow money and obtain effective tax relief for both interest and repayment of principal.
2286.A “finance arrangement”, within this Chapter, is an arrangement where in accordance with GAAP a person (“the borrower”) records in its accounts a financial liability in respect of a sum (“advance”) paid by “the lender”, and that sum is paid to acquire assets (for example an incomestream), which will be used to repay the advance.
2287.Where there is a finance arrangement which would have had theeffect that either:
income or receipts that would have been brought into account by the borrower for tax purposes, but for this arrangement, are not brought into account; or
the borrower would have become entitled to a deduction incomputing its income or profits for tax purposes,
then
the finance arrangement does not have that effect, with the result that the income from the transferred asset continues to be taxed on theborrower; and
any disposal or reacquisition of the asset is disregardedfor the purposes of TCGA.
2288.Corporation tax relief is allowed for the amount of any interest or “finance charge” in respect of the finance agreement shown in theborrower’s accounts. This amount is treatedas interest payable on a debtor loan relationship to which it is party.
2289.This Chapter has the following structure.
Sections 758 to 762 deal with “type 1 finance arrangements”: the simple case, not necessarily involving a partnership.
Sections 763 to 766 deal with “type 2 finance arrangements”: the first of two complex partnership cases.
Sections 767 to 769 deal with “type 3 finance arrangements”: the second of two complex partnership cases.
Sections 770 to 773 make exceptions to these rules.
Sections 774 to 776 are interpretative.
