Introduction Details of the Schedule
3.Paragraph 1(1) of the Schedule provides that terms used in the Schedule have the same meaning as in section 48A of the Finance Act (FA) 2005, which deals with alternative finance investment bonds. This sub-paragraph also explains that references in the Schedule to “prescribed evidence” mean evidence prescribed in regulations made by HM Revenue & Customs (HMRC). It also defines a qualifying interest as “a major interest in land”. The only exclusion is a lease of 21 years or less.
4.Paragraph 1(2) provides that, unless it is clear from the context that this is not the case, any expressions used in the Schedule which are also used in Part 4 of FA 2003 (which deals with SDLT) shall have the same meanings in both places.
5.Paragraph 2 provides an exemption from SDLT for alternative finance investment bonds by ensuring the tax treatment of the bonds is the same as that provided within section 48B(2) of FA 2005 for income tax and capital gains tax (CGT).
6.Paragraph 3(1) states that the tax treatment of alternative finance investment bonds provided at paragraph 2 is not available where a bond-holder, or a group of connected bond-holders, acquires control of the underlying asset.
7.Paragraph 3(2) explains the circumstances in which it may be possible for a single bond-holder, or a group of connected bond–holders, to acquire control of the underlying asset.
8.Paragraph 4 provides two exclusions from paragraph 3.
9.Paragraph 4(2) provides the first exclusion, which applies where, at the time the rights under the bond were acquired, a bond-holder, or all of a group of connected bond-holders, did not know or had no reason to suspect that the bonds enabled the exercise of the rights of management and control of the bond assets and, having subsequently become aware of the rights attached to the bonds, the bond-holder(s) transferred sufficient bonds, as soon as reasonably possible so that they could no longer exercise such control.
10.Paragraph 4(3) provides for the second exclusion which is available for persons acting as underwriters of the bond issuance providing they do not exercise control and management of the bond asset.
11.Paragraph 5(1) introduces 7 conditions (conditions A to G) for the application of paragraphs 6 to 18 of the Schedule to provide relief from SDLT and tax on chargeable gains and to determine the treatment for capital allowances purposes. This sub-paragraph also provides that paragraphs 20 and 22 of the Schedule can prevent these reliefs even if all 7 conditions are satisfied.
12.Sub-paragraph (2) provides condition A. This is that a person (“P”) transfers a qualifying interest in land to another person (“Q”) and P and Q agree that at a later time (when Q ceases to hold that interest as a bond asset in relation to an alternative finance investment bond of which Q is the issuer) Q will transfer that interest to P. The transfer of the qualifying interest to Q is described in the Schedule as “the first transaction”.
13.Sub-paragraph (3) provides condition B. This is that Q acts as bond issuer in relation to an alternative finance investment bond, and holds the interest in land as a bond asset.
14.Sub-paragraph (4)(a) provides condition C. This is that Q and P enter into a “leaseback agreement” to generate income and gains for the alternative investment bond.
15.Sub-paragraph (4)(b) provides that HM Treasury may, by regulations extend the scope of condition C to include financing structures other than those involving a sale and leaseback.
16.Sub-paragraph (5) explains what is meant by “leaseback agreement” in condition C. This is that Q grants P a lease or sublease out of the interest acquired in the first transaction. The sub-paragraph includes provision to ensure that the equivalent transactions under Scottish land law also constitute a leaseback agreement.
17.Sub-paragraph (6) provides condition D. That is that, the bond issuer (Q) is required to provide prescribed evidence that a satisfactory legal charge has been entered on the Land Register. The evidence needs to be provided to HMRC within 120 days of the first transaction. “Prescribed evidence” is evidence prescribed by regulation made by HMRC.
18.Sub-paragraph (7) provides rules relating to the charge over the land referred to in sub-paragraph 6.
19.Sub-paragraph (8)(a) provides that the amount of the charge is to include the amount of SDLT that would be due on the market value of the transfer of the interest at the date of the transfer.
20.Sub-paragraph (8)(b) provides that the charge also includes any interest and penalties that would be payable if the tax has been due (but not paid) on the first transaction.
21.Sub-paragraph (9) provides condition E. This is that, over the life of the alternative finance investment bond, Q receives payments of capital of at least 60 per cent of the value of the interest in land at the time of the first transaction. The purpose of condition D is to ensure that the main use of the interest in land is as a bond asset.
22.Sub-paragraph (10) provides condition F. This is that throughout the life of the alternative finance investment bond Q holds the interest in land as a bond asset.
23.Sub-paragraph (11) provides condition G. This is that at the termination of the bond, when the interest in land ceases to be a bond asset, the interest is transferred to P by Q (this transfer is described as “the second transaction”), and that the second transaction takes place no later than 10 years after the first transaction. This effectively puts a term of 10 years on the alternative finance investment bond.
24.Sub-paragraph (12) provides that the period of 10 years referred to in condition G can be altered by Treasury regulation.