267P Treatment of credit transaction

Summary

This section sets out the tax treatment of “credit transactions”.

Details

(1) A “credit transaction” is to be treated as a loan for the purposes of section 122 (so as to bring it within the Benefit in Kind provisions) and of Part 8 (so that it can be treated as a loan for the purpose of claiming relief under section 247 for interest as a charge).

(2) Where a finance undertaking acquires assets for the purposes of the “credit transactions”, the acquisition of the assets will be regarded as made in the course of the trade where the finance undertaking is carrying on a trade that consists of or includes “specified financial transactions”. This ensures that CGT will not arise on the disposal.

(3) The borrower will not be treated as having incurred a loss on the disposal of assets referred to in paragraph (b)(ii) of the definition of “credit transaction” in section 267N (i.e. where the borrower sells the asset acquired from the bank in order to generate cash).

(4) The finance undertaking will not be entitled to capital allowances on any asset acquired for the purpose of credit sale transactions.

(5) Where an asset is acquired by the borrower under paragraph (c)(i) of the definition of “credit transaction” in section 267N (a new purchase), the borrower will be deemed to have acquired the full interest in that asset for the purpose of any capital allowances due on the asset.

(6) The disposal by the borrower of his interest in the asset referred to in paragraph (c)(ii) of the definition of “credit transaction” in section 267N (where a refinancing occurs) does not give rise to a balancing allowance or charge.

(7) The acquisition by the borrower of the interest in the asset in paragraph (c)(III) of the definition of “credit transaction” in section 267N will not qualify for capital allowances.

The effect of subsections (4) to (7) is that capital allowances should not be given twice on the same asset.

(8) The borrower will not be entitled to a deduction for any capital repayment made to the finance undertaking except in the case of an allowance due under subsection (5).

Relevant Date: Finance Act 2019