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Finance Act 2012

The simple case – new section 196B

21.New section 196B deals with the simple case where the employer etc is the borrower and the lender is a person who acts for, or is otherwise connected with, the registered pension scheme. It stipulates in sub-section 1 the conditions under which relief under section 196 FA 2004 (upfront relief) will not be given to the employer (the borrower) in respect of a contribution paid under the ABC arrangement.

22.New sections 196B(2), (4) and (5) set out these conditions as follows:

  • Condition A is that -

    • the borrower (employer etc) receives the advance which is wholly or partly paid or provided by the lender etc out of the contribution in respect of the arrangement;

    • the borrower or a person connected with the borrower (borrower etc) disposes of an asset (the security) to or for the benefit of the lender etc; and

    • the lender etc is entitled to payments in respect of the security.

  • Condition B is that the arrangement is not a SFA as defined in new section 196J(4); and

  • Condition C is that it is reasonable to suppose that the amount of one or more of the payments mentioned above is determined (wholly or partly) on the basis that, in essence, some part of the advance represents a loan (including any advance of money in accordance with new section 196B(7)(c)) which is to be repaid by the payment(s).

23.New section 196B(2) also makes it clear that those arrangements that fall within new section 196C(2) and 196D(2) do not fall within new section 196B(2).

24.New section 196B(3) states that condition A is met even if an entitlement of the lender etc is subject to any condition.

25.New section 196B(6) makes it clear that condition C is met even if repayments of the loan might be subject to any condition, or the accounts of any person do not record a financial liability in respect of the advance or is not otherwise treated as representing a loan for the purposes of the accounts of any person. However, this is subject to all the relevant circumstances being taken into account in order to get to the essence of the matter.

26.New section 196B(7)(a) ensures that references to a person connected with the borrower or lender do not include the lender or borrower respectively. This means that new section 196B cannot be triggered accidentally just because the borrower and lender are connected. New section 196B(7)(b) ensures that if the borrower is not the employer, the reference to a person connected to the borrower includes a person connected with the employer who would not otherwise be connected with the borrower.

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