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HMRC internal manual

Corporate Finance Manual

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Other tax rules on corporate finance: structured finance: exclusions from Sections759 and 765

Further exceptions to 759 and 765

The second exception to sections 759 and 765 is set out in section 771 (1). The rules will not apply where the whole of the receipt is brought into account under the Capital Allowance Act 2001 as a disposal receipt.

Section 771 (2) then makes it clear that in the case of a capital allowances balancing charge, an advance is not to be treated as wholly brought into account if there is a restriction on the amount of that charge, for instance, because the advance is greater than the expenditure which qualified for allowances, in which case CAA01/S62 would have effect (see CA23250).

Section 771 (3) excludes any arrangements which are at all times loan relationships for the purposes of the rules at CTA09/PT6 or would be such loan relationships if owed by a company. This is because the tax treatment of that type of transaction is already dealt with on an accounts basis under those rules. So where the ‘advance’ is a straightforward loan then it is not necessary to consider the structured finance arrangement rules. However, this does not include money debts which are deemed to be loan relationships under CTA09/PT6/CH2 (CFM41000).

Section 771 (5) excludes any arrangements which are repos or stock-lending arrangements within TCGA92/S263A or CTA09/PT6/CH10 because the tax treatment of that type of transaction is already provided for in a similar fashion (CFM46000). It also excludes any arrangements which are alternative finance arrangements within CTA09/PT6/CH6 (CFM44000).

Section 771 (7) excludes cases where the security (the asset transferred) is the subject of a sale and finance lease back, or where the arrangement is one in relation to which CAA01/S228B and 228C apply (CA28900).

Section 771 (8) provides that CAA01/S221 is used to find the meaning of ‘sale and finance lease back’, but the exclusion made by CAA01/S330 long-funding leases is disregarded. This means that it does not matter whether the lease back is a long funding lease or not: it is still excluded.

This exclusion is because other tax rules deal with these transactions.

Section 772 (2) identifies the relevant person on whom the charge to income must arise before there is an exception: it is the borrower under the structured finance arrangement, a person connected with that borrower, or a member of a borrower partnership, who would not be charged to tax or would be allowed a deduction but for section 759 or section 765.