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Finance Act 2012

The complex case – new sections 196C and 196D

27.New sections 196C and 196D deal with complex types of ABC arrangement involving a partnership receiving the advance, and changes in profit sharing arrangements in relation to the lender etc.

28.New section 196C will apply where, as part of the ABC arrangement which is used to make the contribution, the employer etc (the transferor) transfers an asset to a partnership and is a member of that partnership immediately after the transfer (whether or not a member immediately before the transfer), and there is a relevant change in relation to the partnership as set out in new section 196E. In that circumstance, new section 196C(1) provides that the employer will not receive upfront tax relief under section 196 FA 2004 in respect of the contribution paid to the registered pension scheme when conditions A and B are met.

29.New sections 196C(2) and (5) set out these conditions as follows:

  • Condition A is that -

    • the transferor is the employer etc;

    • the transferor or a person connected with the transferor (transferor etc) disposes of the security to a partnership and is a member of the partnership immediately after the disposal;

    • the partnership receives the advance, which is wholly or partly paid or provided out of the employer’s contribution, from a person (the lender) other than the transferor;

    • there is a relevant change in relation to the partnership as set out in new section 196E; and

    • the share in the partnership’s profits of the person involved in the relevant change is determined by reference to payments in respect of the security.

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

30.New section 196C(3) ensures that where the transferor is not the employer, the reference to a person connected to the transferor includes a person connected with the employer who would not otherwise be connected with the transferor.

31.New section 196C(4) provides that condition A is met even if the determination of the share of partnership’s profits is subject to any condition.

32.New section 196D will apply where the ABC arrangement which the employer uses to make the contribution to the pension scheme also involves a partnership receiving the advance but the security is held by a pre-existing partnership. As part of the ABC arrangement, the partnership receives an advance that is funded in some way by the employer’s contribution. In that circumstance, new section 196D(1) provides that the employer will not receive upfront tax relief under section 196 FA 2004 in respect of the contribution paid to the registered pension scheme under the ABC arrangement when conditions A and B are met.

33.New sections 196D(2) and (4) set out these conditions as follows:

  • Condition A is that -

    • a partnership holds the security at any time before the ABC arrangement is made;

    • the partnership receives the advance which is wholly or partly paid or provided by the lender out of the employer’s contribution in respect of the arrangement;

    • there is a relevant change in relation to the partnership as set out in new section 196E; and

    • the share in the partnership’s profits of the person involved in the relevant change is determined by reference to payments in respect of the security.

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

34.New section 196D(3) provides that condition A is met even if the determination of the share of partnership’s profits is subject to any condition.

35.New section 196E provides that a relevant change in relation to the partnership occurs (which in turn enables the conditions in new sections 196C and 196D to be met) if one of the conditions - condition X or condition Y - is met. New sections 196E(2) and (3) set out these conditions as follows:

  • Condition X is that the lender etc joins the partnership in connection with the ABC arrangement at any time; or

  • Condition Y is that there is a change in the lender etc’s share of the partnership’s profits in connection with the ABC arrangement.

36.References used in this new section and in new sections 196C and 196D are explained in new sections 196E(4) and (5).

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