Commentary

A1.301 Introduction to alternative finance arrangements

Administration and compliance

A1.301 Introduction to alternative finance arrangements

Division A1.3     Alternative finance arrangements

Division A1.3 prepared by
MOHAMMED AMIN, MBE, MA, FCA, AMCT, CTA (Fellow)

Islamic Finance Consultant

For updates affecting this Division please see Part A0 Updates

Alternative finance arrangements

A1.301 Introduction to alternative finance arrangements

The legislation described in this Division provides for the taxation of finance arrangements that do not involve the receipt or payment of interest, and responds to the development of financial products that embody such arrangements. The legislation took effect from 6 April 2005 for the first two contracts covered, but existing profit sharing arrangements were brought within the new rules for profit sharing payments made after that date1. See A1.306 for the detailed transitional rules.

The provisions were originally enacted in FA 2005, Pt 2 Ch 5 (ss 46–57), FA 2005, Sch 2, although they were rewritten by TIOPA 2010 into ITA 2007, Pt 10A (ss 564A–564Y) for individuals, trusts and companies that are outside the charge to corporation tax. In addition TIOPA 2010 inserted a new Chapter in TCGA 1992 (Pt IV Ch 4 (ss 151H–151Y)) to include the necessary rules for capital gains tax purposes. For corporation tax purposes, the provisions were rewritten in CTA 2009, Pt 6 Ch 6 (ss 501–521) for accounting periods ending on or after 1 April 2009. Accordingly, this division cites both the original legislation and the rewritten provisions.

Customers who want access to the type of product referred to above include, in particular, individuals for whom it is important to adhere to Islamic law ('Shariah'). The Quran prohibits

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