http://www.legislation.gov.uk/ukpga/2007/3/part/13/chapter/5BIncome Tax Act 2007An Act to restate, with minor changes, certain enactments relating to income tax; and for connected purposes.texttext/xmlenStatute Law Database2026-09-18Expert Participation2026-09-16 Income Tax Act 2007s. 788(7)Legal Services Act 2007Sch. 21 para. 161(b)s. 29 192 193s. 211(2)art. 2(h) Part 13Chapter 5B809BZA1For the purposes of this Chapter an arrangement is a type 1 finance arrangement if conditions A and B are met.2Condition A is that under the arrangement—aa person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),bthe 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, andcthe lender or a person connected with the lender is entitled to payments in respect of the security.2AFor 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.3Condition B is that in accordance with generally accepted accounting practice—athe borrower's accounts for the period in which the advance is received record a financial liability in respect of it, andbthe payments reduce the amount of the financial liability.4If the borrower is a partnership the reference to the borrower's accounts includes a reference to the accounts of any member of the partnership.5For the purposes of this section the borrower and the lender are not connected with one another.809BZB1This section applies if a type 1 finance arrangement would have the relevant effect (ignoring this section).2The arrangement is not to have that effect.3The relevant effect is that—aan 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,ban 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, orcthe borrower or a person connected with the borrower becomes entitled to an income deduction.4But if the borrower is a partnership the relevant effect is that—aan amount of income on which a member of the partnership would otherwise have been charged to income tax is not so charged,ban 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, orca member of the partnership becomes entitled to an income deduction.5For the purposes of this section the borrower and the lender are not connected with one another.6An income deduction is—aa deduction in calculating income for income tax purposes, orba deduction from total income.809BZC1This section applies if—aa type 1 finance arrangement would not have the relevant effect (ignoring section 809BZB(2)),bthat arrangement would not have the corresponding corporation-tax effect (ignoring section 759(2) of CTA 2010), andcthe borrower is—iwithin the charge to income tax, oriia partnership at least one member of which is within the charge to income tax.2The 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.3Subsection (2) applies whether or not the payments are also the income of another person for tax purposes.4Subsections (3) to (6) of section 809BZB (meaning of relevant effect) apply for the purposes of this section as for those of that.5In 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)).809BZD1This section applies if—athere is a type 1 finance arrangement,bthe borrower is not a partnership,cthe arrangement is prevented by section 809BZB from having the relevant effect in relation to the borrower, or section 809BZC applies to the borrower, anddin accordance with generally accepted accounting practice the borrower's accounts record an amount as a finance charge in respect of the advance.2For income tax purposes the borrower may treat the amount as interest payable on a loan.3If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—atreat 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,btreat the interest elements of the payments as paid when the payments are paid, andctreat the deemed interest as paid at the times when the interest elements are treated as paid.809BZE1This section applies if each of conditions A to C is met.2Condition A is that—athere is a type 1 finance arrangement, andbthe borrower is a partnership.3Condition B is that—athe arrangement is prevented by section 809BZB from having the relevant effect in relation to a person who is a member of the partnership, orbsection 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).4Condition 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.5For income tax purposes the person may treat the amount as interest payable by the partnership on a loan.6If an amount is treated as interest (“deemed interest”) under subsection (5), to find out when it is paid—atreat 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,btreat the interest elements of the payments as paid when the payments are paid, andctreat the deemed interest as paid at the times when the interest elements are treated as paid.809BZF1For the purposes of this Chapter an arrangement is a type 2 finance arrangement if conditions A and B are met.2Condition A is that—aunder the arrangement a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,bthe 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),cunder the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),dthere is a relevant change in relation to the partnership (see section 809BZG), andeunder 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.2AFor 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.3Condition B is that in accordance with generally accepted accounting practice—athe partnership's accounts for the period in which the advance is received record a financial liability in respect of it, andbthe payments reduce the amount of the financial liability.4The reference to the partnership's accounts includes a reference to the transferor's accounts.809BZG1For the purposes of this Chapter there is a relevant change in relation to a partnership if condition A or condition B is met.2Condition 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.3Condition B is that—ain connection with the arrangement there is at any time a change in a member's share in the partnership's profits, andbthe 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.4An event occurs in connection with the arrangement if it occurs directly or indirectly in consequence of it or otherwise in connection with it.5If there is a relevant change in relation to a partnership, a reference in this Chapter to the person involved in the change is—aif it is condition A that is met, to the person who becomes a member of the partnership, andbif 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.809BZH1This section applies if—athere is a type 2 finance arrangement, andbany relevant change in relation to the partnership would have the relevant effect (ignoring this section).2In such a case—aPart 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, andbaccordingly the finance arrangement is not to have the relevant effect.3The relevant effect is that—aan 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,ban 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, orcthe transferor or the person connected with the transferor becomes entitled to an income deduction.4In 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.5An income deduction is—aa deduction in calculating income for income tax purposes, orba deduction from total income.809BZI1This section applies if—athere is a type 2 finance arrangement,bthe transferor is a person within the charge to income tax, andcin accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.2For income tax purposes the transferor may treat the amount as interest payable by the transferor on a loan.3The reference in subsection (1) to the partnership's accounts includes a reference to the transferor's accounts.4If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—atreat 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,btreat the interest elements of the payments as paid when the payments are paid, andctreat the deemed interest as paid at the times when the interest elements are treated as paid.809BZJ1For the purposes of this Chapter an arrangement is a type 3 finance arrangement if conditions A and B are met.2Condition A is that—aa partnership holds an asset (“the security”) as a partnership asset at any time before the arrangement is made,bunder the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),cthere is a relevant change in relation to the partnership (see section 809BZG), anddunder 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.2AFor 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.3Condition B is that in accordance with generally accepted accounting practice—athe partnership's accounts for the period in which the advance is received record a financial liability in respect of it, andbthe payments reduce the amount of the financial liability.4The 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.809BZK1This section applies if—athere is a type 3 finance arrangement, andbany relevant change in relation to the partnership would have the relevant effect (ignoring this section).2The relevant effect is that—aan amount of income on which a relevant member would otherwise have been charged to income tax is not so charged,ban 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, orca relevant member becomes entitled to an income deduction.3A relevant member is a person who—awas a member of the partnership immediately before the relevant change in relation to it occurred, andbis not the lender.4If this section applies—aPart 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, andbaccordingly the finance arrangement is not to have the relevant effect.5In 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.6An income deduction is—aa deduction in calculating income for income tax purposes, orba deduction from total income.809BZL1This section applies if—athere is a type 3 finance arrangement,ba relevant member is a person within the charge to income tax, andcin accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.2For income tax purposes the relevant member may treat the amount as interest payable by the partnership on a loan.3The reference in subsection (1) to the partnership's accounts includes a reference to the accounts of any relevant member.4If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—atreat 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,btreat the interest elements of the payments as paid when the payments are paid, andctreat the deemed interest as paid at the times when the interest elements are treated as paid.5A relevant member is a person who—awas a member of the partnership immediately before the relevant change in relation to it occurred, andbis not the lender.809BZM1Sections 809BZN to 809BZP make provision for finance arrangement codes not to apply in certain circumstances.2For the purposes of those sections each of the following groups of provisions is a finance arrangement code—asections 809BZA to 809BZE (type 1 arrangements),bsections 809BZF to 809BZI (type 2 arrangements), andcsections 809BZJ to 809BZL (type 3 arrangements).809BZN1A finance arrangement code does not apply if the whole of the advance under the arrangement—ais charged to tax on a relevant person as an amount of income,bis brought into account in calculating for tax purposes any income of a relevant person, orcis 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.2Treat subsection (1)(c) as not met if—athe receipt gives rise, or proceeds give rise, to a balancing charge, andbthe amount of the balancing charge is limited by any provision of CAA 2001.3A finance arrangement code does not apply if at all times the whole of the advance under the arrangement—ais a debtor relationship of a relevant person for the purposes of Part 5 of CTA 2009 (loan relationships), orbwould be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.4In 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).5A finance arrangement code does not apply so far as—asection 263A of TCGA 1992 applies in relation to the arrangement (agreements for sale and repurchase of securities), orbSchedule 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).6A 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).7A 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.8For 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.9A finance arrangement code does not apply so far as sections 228B and 228C of CAA 2001 (finance leaseback) apply in relation to the arrangement.9AA finance arrangement code does not apply if the arrangement is a right-of-use lease—aunder which the relevant person is a lessee, andbwhich, 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.9BIn subsection (9A) “right-of-use lease” has the same meaning as in Part 2 of CAA 2001 (see section 70YI(1) of that Act).10Section 809BZO defines a relevant person for the purposes of this section.809BZO1This section defines a relevant person for the purposes of section 809BZN.2If (apart from sections 809BZN and 809BZP) sections 809BZA to 809BZE would apply, each of the following is a relevant person—athe borrower, andba person connected with the borrower or (if the borrower is a partnership) a member of the partnership.3If (apart from sections 809BZN and 809BZP) sections 809BZF to 809BZI would apply, the transferor is a relevant person.4If (apart from sections 809BZN and 809BZP) sections 809BZJ to 809BZL would apply, a relevant member as there defined is a relevant person.5For 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.809BZP1The Treasury may make regulations prescribing other circumstances in which a finance arrangement code is not to apply.2The regulations may amend sections 809BZN and 809BZO.3The power to make regulations includes—apower to make provision that has effect in relation to times before the making of the regulations (but not times before 6 June 2006),bpower to make different provision for different cases or different purposes, andcpower to make incidental, supplemental, consequential and transitional provision and savings.809BZQ1This section applies for the purposes of this Chapter.2A 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.3In 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.4If 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.809BZRA reference in this Chapter to an arrangement includes a reference to an agreement or understanding (whether or not legally enforceable).809BZS1This section applies for the purposes of this Chapter.2A reference to a person receiving an asset includes—aa reference to the person obtaining (directly or indirectly) the value of an asset or otherwise deriving (directly or indirectly) a benefit from it, andba reference to the discharge (in whole or part) of a liability of the person.3A reference to a disposal of an asset includes a reference to anything constituting a disposal of it for the purposes of TCGA 1992.4A reference to payments in respect of an asset includes—aa reference to payments in respect of another asset substituted for it under the arrangement, andba reference to obtaining (directly or indirectly) the value of an asset or otherwise deriving (directly or indirectly) a benefit from it.S. 809BZJ(2A) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 36Ss. 809BZQ-809BZS and cross-heading inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 6 (with Sch. 9 paras. 1-9, 22)Words in s. 809BZH inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 35Ss. 809BZM-809BZP and cross-heading inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 5 (with Sch. 9 paras. 1-9, 22)Pt. 13 Ch. 5B restricted by 2004 c. 12, s. 196G(2)(3) (as inserted 17.7.2012 (with effect in accordance with Sch. 13 para. 3 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 1 (with Sch. 13 Pt. 2))S. 809BZN(9A)(9B) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 3Pt. 13 Ch. 5B restricted by 2004 s. 12 s. 196I(5)(6) (as inserted 17.7.2012 (with effect in accordance with Sch. 13 para. 17 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 15 (with Sch. 13 Pt. 4))Words in s. 809BZF(2)(b) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 34(2)Ss. 809BZJ-809BZL and cross-heading inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 4 (with Sch. 9 paras. 1-9, 22)Ss. 809BZF-809BZI and cross-heading inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 3 (with Sch. 9 paras. 1-9, 22)S. 809BZF(2A) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 34(3)S. 809BZA(2A) inserted (17.7.2012) (with effect in accordance with Sch. 13 para. 42 of the amending Act) by Finance Act 2012 (c. 14), Sch. 13 para. 33Pt. 13 Ch. 5B inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 5 para. 2 (with Sch. 9 paras. 1-9, 22)