Commentary on Sections Schedule 11 - Relief for alternative finance investment bonds
311.This Schedule makes provision for relief from LTT for land transactions connected to the issue of alternative finance investment bonds. As with alternative property finance these arrangements are primarily designed to be compatible with Shari’a law, which prohibits the payment and receipt of interest.
312.In a conventional securitisation the investor does not have direct ownership of the underlying asset but holds an interest-bearing certificate. However, in the case of alternative finance investment bonds, the investors own part of the underlying asset and derive their reward from the profits or rents generated by that asset. In order to structure the issuance of the bonds it is necessary to (temporarily) change the ownership of the underlying asset on which the bond’s income is to be based, to normally, a special purpose vehicle bond issuer. The bonds can then be issued to the bond-holder and the money raised passed to the person seeking the finance. Once the cancellation date for the bonds is reached the underlying asset must be returned to the person who originally sought the finance. If the asset used to back the bonds and generate the return for the bond-holders is land in Wales, then the arrangement will involve land transactions that in the absence of this relief would be chargeable to LTT, when a conventional bond arrangement would not attract similar LTT charges.