CFM20315 - Securitisation: taxation: periods beginning on or after 1 January 2007: ‘alternative finance’ arrangements

Alternative finance investment bonds

FA05/S48A and S48B provide tax rules on a form of Shari’a compliant bond known as ‘sukuk’. The legislation refers to this as an ‘alternative finance investment bond’. Guidance on the legislation, which was introduced by FA07/S52, and applies from 1 April 2007, is at CFM6088.

There is no debt obligation to investors in such instruments, but the tax rules in FA05/S48A treat them as securities for tax purposes, where they are economically equivalent to conventional bonds. FA05/S48B (3)(c) provides that for the purposes of FA05/S84, the issuer of an alternative finance investment bond is to be treated as being party as debtor to a capital market arrangement. A company issuing sukuk can therefore come within the securitisation regulations, subject to meeting the other conditions in FA05/S84 and in the Taxation of Securitisation Companies Regulations 2006.

FA05/S48B (6) prevents a sukuk issuer coming within the interim regime in FA05/S83, and thus requiring it to use UK GAAP as it stood at 31 December 2004. There were no sukuk issuers in the UK at 1 January 2005, when the interim regime began.