Part 6Relationships treated as loan relationships etc

Chapter 6Alternative finance arrangements

Arrangements that are alternative finance arrangements

504Diminishing shared ownership arrangements F1: initial acquisition

(1)

This section applies to arrangements if under them—

(a)

a F2person (“F3the financier”) acquires a beneficial interest in an asset,

F4(aa)

either—

(i)

F3the financier is a financial institution or a regulated home purchase plan provider, or

(ii)

the arrangements are regulated electronic system facilitated arrangements,

(b)

another person (“F5the customer”) also acquires a beneficial interest in it,

(c)

F5the customer is to make payments to F3the financier amounting in aggregate to the consideration paid for the acquisition of F6the financier’s beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),

(d)

F5the customer is to acquire F6the financier’s beneficial interest (whether or not in stages) as a result of those payments,

(e)

F5the customer is to make other payments to F3the financier (whether under a lease forming part of the arrangements, or otherwise),

(f)

F5the customer has the exclusive right to occupy or otherwise to use the asset, and

(g)

F5the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).

F7(1A)

Arrangements are regulated electronic system facilitated arrangements if—

(a)

the arrangements substantially consist of an article 36H agreement in relation to the enjoyment by F5the customer of the rights referred to in subsection (1)(f) and (g) before F8the customer’s acquisition of F6the financier’s beneficial interest,

(b)

F5the customer would be regarded, for the purposes of that agreement, as the borrower under it,

(c)

F3the financier would be regarded, for the purposes of that agreement, as the lender under it, and

(d)

F9the customer and the financier becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).

(2)

For the purposes of subsection (1)(a) it does not matter if—

(a)

F3the financier acquires its beneficial interest from F5the customer,

(b)

F5the customer, or another person who is not F3the financier, also has a beneficial interest in the asset, or

(c)

F3the financier also has a legal interest in it.

(3)

Subsection (1)(f) does not prevent F5the customer from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.

(4)

The conditions are that—

(a)

the grant is not to—

(i)

F3the financier,

(ii)

a person controlled by F3the financier, or

(iii)

a person controlled by a person who also controls F3the financier, and

(b)

the grant is not required by F3the financier or arrangements to which F3the financier is a party.

(5)

Subsection (1)(g) does not prevent F3the financier from—

(a)

having responsibility for any reduction in the asset's value, or

(b)

having a share in a loss arising out of any such reduction.

(6)

This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from section 503, this section and sections F10504A to 507).

F11(7)

In this section—

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order;

“regulated home purchase plan provider” means a person who—

(a)

is carrying on the regulated activity specified in article 63F(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (entering into regulated home purchase plans as home purchase provider), and

(b)

has permission under Part 4A of FISMA 2000 to do so.