Finance Bill

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Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 2 — Issue, transfer and redemption of rights under arrangements
422

Schedule 61
Section 122

Alternative finance investment bonds
Part 1
Introductory
Interpretation
5
1     (1)
In this Schedule—
“alternative finance investment bond” means arrangements within
section 48A of FA 2005 (alternative finance investment bond:
introduction);
“bond assets”, “bond-holder”, “bond-issuer” and “capital” have the
10
meaning given by that section;
“HMRC” means Her Majesty’s Revenue and Customs;
“prescribed” means prescribed in regulations made by HMRC;
“qualifying interest” means—
(a)
a major interest in land (within the meaning given by section
15
117 of FA 2003), or
(b)
an undivided share of a major interest in land,
except that it does not include a lease if the lease is for a term of years
or, in Scotland, a period of less than 21 years.
      (2)
Except where the context otherwise requires, any expression which is used
20
in this Schedule and in Part 4 of FA 2003 has the meaning which it has in that
Part.
Part 2
Issue, transfer and redemption of rights under arrangements
Issue, transfer and redemption of rights under bond not be treated as chargeable transaction
25
2
Section 48B(2) of FA 2005 (effect of bond for purposes of tax) applies for the
purposes of stamp duty land tax as it applies for the purposes of income tax
and capital gains tax.
Relief not available where bond-holder acquires control of underlying asset
3     (1)
Paragraph 2 does not apply if control of the underlying asset is acquired
30
by—
(a)
a bond-holder, or
(b)
a group of connected bond-holders.
      (2)
A bond-holder (“BH”), or a group of connected bond-holders, acquires
control of the underlying asset if—
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(a)
the rights of bond-holders under an alternative finance investment
bond include the right of management and control of the bond
assets, and
(b)
BH, or the group, acquires sufficient rights to enable BH, or the
members of the group acting jointly, to exercise the right of
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Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
423

management and control of the bond assets to the exclusion of any
other bond-holders.
4     (1)
But paragraph 3(1) does not apply (and, accordingly, section 48B(2) of FA
2005 applies by virtue of paragraph 2) in either of the following cases.
      (2)
The first case is where—
5
(a)
at the time that the rights were acquired BH (or all of the connected
bond-holders) did not know and had no reason to suspect that the
acquisition enabled the exercise of the right of management and
control of the bond assets to the exclusion of other bond-holders, and
(b)
as soon as reasonably practicable after BH (or any of the bond-
10
holders) becomes aware that the acquisition enables that exercise,
BH transfers (or some or all of the bond-holders transfer) sufficient
rights for that exercise no longer to be possible.
      (3)
The second case is where BH—
(a)
underwrites a public offer of rights under the bond, and
15
(b)
does not exercise the right of management and control of the bond
assets.
      (4)
In this paragraph—
“connected” is to be read in accordance with section 839 of ICTA, and
“underwrite”, in relation to an offer of rights under a bond, means to
20
agree to make payments of capital under the bond in the event that
other persons do not make those payments.
Part 3
Transactions relating to underlying assets consisting of land
Introductory
25
General conditions for operation of reliefs etc
5     (1)
This paragraph defines conditions A to G for the purposes of paragraphs 6
to 18.

Paragraphs 20 and 22 set out circumstances in which the reliefs provided by
paragraphs 6 to 18 are not available even if conditions A to G are met.
30
      (2)
Condition A is that one person (“P”) and another (“Q”) enter into
arrangements under which—
(a)
P transfers to Q a qualifying interest in land (“the first transaction”),
and
(b)
P and Q agree that when the interest ceases to be held by Q as
35
mentioned in sub-paragraph (3)(b), Q will transfer the interest to P.
      (3)
Condition B is that—
(a)
Q, as bond-issuer, enters into an alternative finance investment bond
(whether before or after entering into the arrangements mentioned in
sub-paragraph (2)), and
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(b)
the interest in land to which those arrangements relate is held by Q
as a bond asset.

Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
424

      (4)
Condition C is that, for the purpose of generating income or gains for the
alternative finance investment bond—
(a)
Q and P enter into a leaseback agreement, or
(b)
such other condition or conditions as may be specified in regulations
made by the Treasury is or are met.
5
      (5)
For the purposes of condition C, Q and P enter into a leaseback agreement if
Q grants to P, out of the interest transferred to Q,—
(a)
a lease (if the interest transferred is freehold or, in Scotland, the
interest of the owner), or
(b)
a sub-lease (if the interest transferred is leasehold or, in Scotland, the
10
tenant’s right over or interest in a property subject to a lease).
      (6)
Condition D is that, before the end of the period of 120 days beginning with
the effective date of the first transaction, Q provides HMRC with the
prescribed evidence that—
(a)
a satisfactory legal charge has been entered in the register of title kept
15
under section 1 of the Land Registration Act 2002,
(b)
in Scotland, a satisfactory standard security has been registered in
the Land Register of Scotland, or
(c)
in Northern Ireland, a satisfactory charge has been entered in the
register of titles kept under section 10 of the Land Registration Act
20
(Northern Ireland) 1970.
      (7)
A charge or security is satisfactory for the purposes of condition D if it—
(a)
is a first charge, or a security which ranks first, in favour of HMRC,
(b)
is imposed on, or granted over, the interest transferred to Q, and
(c)
is for the amount mentioned in sub-paragraph (8).
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      (8)
That amount is the total of—
(a)
the amount of stamp duty land tax which would (apart from
paragraph 6(2)) be chargeable on the first transaction if the
chargeable consideration for that transaction had been the market
value of the interest at that time, and
30
(b)
any interest and any penalties which would for the time being be
payable on or in respect of that amount of tax, if the tax had been due
and payable (but not paid) in respect of the first transaction.
      (9)
Condition E is that the total of the payments of capital made to Q before the
termination of the bond is not less than 60% of the value of the interest in the
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land at the time of the first transaction.
     (10)
Condition F is that Q holds the interest in the land as a bond asset until the
termination of the bond.
     (11)
Condition G is that—
(a)
before the end of the period of 30 days beginning with the date on
40
which the interest in the land ceases to be held as a bond asset, that
interest is transferred by Q to P (“the second transaction”), and
(b)
the second transaction is effected not more than 10 years after the
first transaction.
     (12)
The Treasury may by regulations amend sub-paragraph      (11)(b) by
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substituting for the period mentioned there such other period as may be
specified.

Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
425

Stamp duty land tax
Relief from stamp duty land tax: first transaction
6     (1)
This paragraph applies if—
(a)
the first transaction relates to an interest in land in the United
Kingdom, and
5
(b)
each of conditions A to C is met before the end of the period of 30
days beginning with the effective date of that transaction.
      (2)
Where this paragraph applies the first transaction is exempt from charge to
stamp duty land tax.
      (3)
Where the interest in the land is replaced as the bond asset by an interest in
10
other land, this paragraph is subject to paragraph 18.
      (4)
This paragraph is also subject to paragraph 20.
7     (1)
This paragraph applies if—
(a)
the interest in the land is transferred by Q to P without conditions E
and F having been met,
15
(b)
the period mentioned in paragraph 5(11)(b) expires without each of
those conditions having been met, or
(c)
at any time it becomes apparent for any other reason that any of
conditions E to G cannot or will not be met.
      (2)
This paragraph also applies if condition D is not met.
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      (3)
The relief provided by paragraph 6(2) is withdrawn and stamp duty land tax
is chargeable on the first transaction in accordance with this paragraph.
      (4)
The amount chargeable is the tax that would have been chargeable in respect
of the first transaction (but for relief under paragraph 6(2)) if the chargeable
consideration for that transaction had been the market value of the interest
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at the time of that transaction.
      (5)
Interest is due and payable on the amount of that tax as from the end of the
period of 30 days after the effective date of that transaction until the tax is
paid.
      (6)
Q must deliver a further land transaction return before the end of the period
30
of 30 days after the date on which this paragraph first applies.
      (7)
The return must include a self-assessment of the amount of tax chargeable.
      (8)
Tax payable must be paid not later than the filing date for the further return.
      (9)
Schedule 10 to FA 2003 (returns, assessments and other matters) applies to a
return under this paragraph as it applies to a return under section 76 of that
35
Act (general requirement to deliver land transaction return), with the
following modifications—
(a)
references to the transaction to which the return relates are to the
event by virtue of which this paragraph applies, and
(b)
references to the effective date of the transaction are to the date on
40
which that event occurs.

Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
426

Relief from stamp duty land tax: second transaction
8     (1)
The second transaction is exempt from charge to stamp duty land tax if—
(a)
each of conditions A to G is met, and
(b)
the provisions of Part 4 of FA 2003 relating to the first transaction are
complied with.
5
      (2)
Where the interest in the land is replaced as the bond asset by an interest in
other land, this paragraph is subject to paragraph 18.
      (3)
This paragraph is also subject to paragraph 20.
Discharge of statutory charge when conditions for relief met
9
If, after the effective date of the second transaction, Q provides HMRC with
10
the prescribed evidence that each of conditions A to C and E to G has been
met, the land ceases to be subject to the charge imposed or security granted
in pursuance of condition D.
Taxation of capital gains
Relief from taxation of capital gains: first transaction
15
10    (1)
This paragraph applies if each of conditions A to C is met before the end of
the period of 30 days beginning with the effective date of the first
transaction.
      (2)
That transaction is not to be regarded for the purposes of TCGA 1992 as an
acquisition by Q or a disposal by P.
20
      (3)
If condition C is met by virtue of Q and P having entered into a leaseback
agreement, the granting of the lease or sub-lease is not to be regarded for the
purposes of TCGA 1992 as an acquisition by P or a disposal by Q.
      (4)
Sub-paragraphs (2) and (3) are subject to paragraph 11 (treatment of
transactions where any of conditions D to G is not met).
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      (5)
Where the interest in the land is replaced as the bond asset by an interest in
other land, this paragraph is subject to paragraph 18.
      (6)
This paragraph is also subject to paragraph 20.
11    (1)
This paragraph applies if—
(a)
the interest in the land is transferred by Q to P without conditions E
30
and F having been met,
(b)
the period mentioned in paragraph 5(11)(b) expires without each of
those conditions having been met, or
(c)
at any time it becomes apparent for any other reason that any of
conditions E to G cannot or will not be met.
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      (2)
This paragraph also applies where (in the case of an interest in land in the
United Kingdom) condition D is not met.
      (3)
Where this paragraph applies, paragraph 10(2) and (3) (disregard of
transactions for purposes of TCGA 1992) do not apply.
      (4)
Where, by virtue of sub-paragraph (3), any chargeable gain or loss is treated
40
as accruing to a person, that gain or loss is to be treated as accruing—

Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
427

(a)
in the case mentioned in sub-paragraph (1)(a), immediately before
the transfer from Q to P;
(b)
in any case mentioned in paragraph (b) or (c) of sub-paragraph (1), at
the time mentioned in that paragraph;
(c)
in the case mentioned in sub-paragraph (2), at the end of the period
5
mentioned in paragraph 5(6).
Relief from taxation of capital gains: second transaction
12    (1)
The second transaction is not to be regarded for the purposes of TCGA 1992
as an acquisition by P or a disposal by Q if—
(a)
each of conditions A to C and E to G is met, and
10
(b)
in the case of an interest in land in the United Kingdom, condition D
is met.
      (2)
Where the interest in the land is replaced as the bond asset by an interest in
other land, this paragraph is subject to paragraph 18.
      (3)
This paragraph is also subject to paragraph 20.
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Capital allowances
Introductory
13    (1)
Paragraphs 14 to 17 make provision about the treatment, for the purposes of
CAA 2001, of transactions relating to land in connection with an alternative
finance investment bond.
20
      (2)
Any expression which is used in any of paragraphs 14 to 17 and in CAA 2001
has the meaning which it has in that Act.
Treatment for purposes of capital allowances
14    (1)
This paragraph applies to an asset if—
(a)
each of conditions A to C is met before the end of the period of 30
25
days beginning with the effective date of the first transaction, and
(b)
the asset falls within sub-paragraph (2).
      (2)
An asset falls within this sub-paragraph if it is part of the subject matter of
the first transaction and constitutes—
(a)
plant or machinery, or
30
(b)
an industrial building (or part of an industrial building).
      (3)
For the purposes of CAA 2001—
(a)
expenditure incurred by Q in acquiring the asset by virtue of the first
transaction is not to be regarded as capital expenditure;
(b)
Q is not to be regarded as becoming, and P is not to be regarded as
35
ceasing to be, the owner of the asset by virtue of that transaction.
      (4)
Sub-paragraph (3) applies in relation to the transactions mentioned in sub-
paragraph (5) as it applies in relation to the first transaction (but reading the
references to Q as references to P and the reference to P as a reference to Q).
      (5)
The transactions are—
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Finance Bill
Schedule 61 — Alternative finance investment bonds
Part 3 — Transactions relating to underlying assets consisting of land
428

(a)
any leaseback agreement entered into by Q and P in order that
condition C is met, and
(b)
the second transaction.
      (6)
This paragraph is subject to paragraphs 15 to 17.
Loss or destruction of asset
5
15    (1)
This paragraph applies to an asset if the first and second conditions are met.
      (2)
The first condition is that the asset—
(a)
is part of the subject matter of the first transaction, and
(b)
constitutes plant or machinery.
      (3)
The second condition is that, at any time when the asset is held as a bond
10
asset, one of the following events occurs—
(a)
the person with possession of the asset loses possession of it in
circumstances where it is reasonable to assume that the loss is
permanent, or
(b)
the asset ceases to exist as such (as a result of destruction,
15
dismantling or otherwise).
      (4)
That event is to be treated as a disposal event (in relation to P) occurring in
the chargeable period in which that event occurs.
      (5)
For the purposes of sub-paragraph (4), the disposal value that P is required
to bring into account is—
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(a)
where the case falls within item 3 or 4 of the Table in section 61(2) of
CAA 2001 and the amount received by P as mentioned in that item is
other than zero, that amount;
(b)
in any other case, the market value of the asset at the time of the
event.
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Q retaining asset when no longer held for purposes of bond
16    (1)
This paragraph applies to an asset if the first and second conditions are met.
      (2)
The first condition is that the asset is part of the subject matter of the first
transaction and constitutes—
(a)
plant or machinery, or
30
(b)
an industrial building (or part of an industrial building).
      (3)
The second condition is that Q—
(a)
ceases to hold the asset as a bond asset (whether at the end of the
bond term or at any other time), but
(b)
does not transfer the asset to P or any other person.
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      (4)
At the time that Q ceases to hold the asset as a bond asset, Q is to be treated
as becoming, and P is to be treated as ceasing to be, the owner of the asset.
      (5)
Accordingly, Q’s ceasing to hold the asset as a bond asset is to be treated—
(a)
as regards plant or machinery, as a disposal event (in relation to P)
occurring in the chargeable period in which the cessation takes place,
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and