CFM6070 - Taxing loan relationships: alternative finance: loan relationships

Alternative finance arrangements and loan relationships

Where a company enters into an alternative finance arrangement that arrangement is to be treated as if the company had entered into a loan relationship. All references to a loan relationship in the Taxes Acts are to include references to alternative finance arrangements – FA2005/S50 - and therefore for corporation tax purposes all the loan relationship rules apply as they would do to conventional arrangements.

The amount of the equivalent loan for a purchase and resale arrangement is the purchase price of the asset for the purposes of FA2005/S47 – see CFM6052. The alternative finance return paid under the arrangement is to be treated as if it were interest payable under that loan relationship.

The amount of the equivalent loan made by the company to the financial institution under a deposit arrangement is the amount deposited by the company see CFM6060. The company and the financial institution treat the profit share return payable under the arrangement in the same way as if it were interest payable under that loan relationship.

The amount of the equivalent loan for a diminishing shared ownership arrangement is the amount paid by the financial institution for its acquisition of its beneficial interest in the asset for the purposes of FA2005/47A see CFM6054. The alternative finance return paid under the arrangement is to be treated as if it were interest payable under that loan relationship.

The amount of the equivalent loan made under a profit share agency arrangement by a company to the financial institution (where the company is the principal) is the amount provided under the arrangement to the financial institution see CFM6062. Where the company is the agent under a profit share agency arrangement the amount of the equivalent loan made to the company is the amount provided under the arrangement. The company and the financial institution treat the profit share return payable under the arrangement in the same way as if it were interest payable under that loan relationship.

No specific statutory provision is necessary for alternative finance investment bonds ( CFM6088). The amount of the equivalent loan, for a corporate holder or issuer, will be the amount shown in accounts prepared in accordance with GAAP.