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HMRC internal manual

Company Taxation Manual

Particular topics: rent factoring: repeal of rent factoring legislation from 6 June 2006

ICTA88/S43A to S43G (inserted by FA00/S110 (1)) countered avoidance through what is known as rent factoring.  Large companies seeking to raise finance typically use these arrangements.  In substance rent factoring schemes are equivalent to bank loans but they aim to get a more advantageous tax result for the companies engaging in them.

The schemes involve different detailed mechanisms but generally follow the same fundamental approach.  In exchange for a lump sum, in essence a loan, a company diverts future rents from property to a financier, usually a bank.  The rents repay the capital element of the loan as well as paying the interest.  By exchanging future income for a lump sum in this way the borrower aims to get tax relief that would not otherwise be available for loan repayments.

However the lender aims to be taxable only on the inherent interest element of the rents.  This is usually because the lender is a financial trader and the lump sum paid for the rents is claimed to be on trading account.  So there is an intended mismatch between the position of the borrower and that of the lender.

Rent factoring is one example of a more general avoidance technique and ICTA88/S43A to S43G were repealed by FA06/SCH6/PARA1 (1) and replaced by ICTA88/S774A to S774G (factoring of income receipts – structured finance arrangements), which take a different and broader approach.  This legislation is now at CTA10/S758 to S776.  See CFM73010.

The guidance on rent factoring in paragraphs CTM36620 to CTM36650 is available in archive from CTIS (Technical).