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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: structured finance: the complex partnership case

The complex partnership case: sections 763-769

The arrangements in CTA10/S758 to S762 involve relatively straightforward structures directly comparable to the arrangements at which the rent factoring arrangements were aimed, but now extended to include assets other than land. But more complex arrangements can be entered into.


The facts are as at CFM73030. A company wishes to borrow £100m and has an asset on which income of £112.5m will arise over the next five years. But instead of selling the asset to the lender, the borrower transfers it to a partnership of which it is a member. Lender then joins the partnership for a capital contribution of say £100m, in return for the right to receive partnership profits amounting to £112.5m over the next 5 years. The partnership will then lend the £100m to the company. After 5 years, all of the rights to receive partnership profits will revert to the borrower (who may be able to buy out lender’s interest for a nominal consideration or have the right to expel the lender). In substance, lender has made a loan of £100m for the benefit of borrower which is repaid plus interest by the borrower.

Again, it is claimed that borrower is not taxable on the income of £112.5m, which flows to the partnership and allocated to lender.

In these types of arrangements, the lender’s ‘loan’ is made in the form of a contribution to the partnership and its profit share is such that payments are made to it which repay that contribution together with interest. Once the repayment with interest has been made the lender will cease to be a member of the partnership or to share in the profits of it.

These arrangements would not be caught by section 758 (4) CFM73070. That provision deals with cases where it is the partnership itself that borrows by transferring to the lender an income-producing asset of the partnership. But in this case the borrower is a member of a partnership who transfers to that partnership an income producing asset with the bulk of that income then appropriated to another partner who supplies the amount that equates to a loan.

These cases are dealt with by sections 763 to 769 .