What exception does section 755 of the Corporation Tax Act 2010 provide?

Section 755 disapplies the income stream transfer rules where the transfer is made by way of security for a financing advance rather than as an outright disposal. It covers transfers where the consideration is an advance under a Type 1, Type 2 or Type 3 finance arrangement, preventing unexpected tax charges on secured lending transactions.

How does the section 755 exception apply to Type 1 finance arrangements?

Under a Type 1 finance arrangement, the exception applies where the consideration for transferring an income stream is an advance under the arrangement and the transferor, or a partnership of which the transferor is a member, is the borrower. The income stream is treated as pledged collateral rather than sold outright, so no tax charge arises.

Where are the Type 1, Type 2 and Type 3 finance arrangements defined in the Corporation Tax Act 2010?

Type 1 finance arrangements are defined in section 758, Type 2 in section 763, and Type 3 in section 767 of the Corporation Tax Act 2010. Each describes a different structured financing mechanism, but all share the common feature that the transfer of an income stream serves as security for money advanced.

Why is the section 755 exception important in practice?

Without section 755, a company pledging an income stream as security for a loan could be taxed as though it had disposed of the income outright. The exception prevents this, ensuring the tax treatment reflects the economic substance of secured lending transactions rather than imposing charges that do not match the commercial reality.

Corporation Tax Act 2010 section 755

Exception: transfer by way of security

Section 755 provides an exception from the income stream transfer rules where the transfer is made by way of security under certain finance arrangements.

The income stream transfer rules do not apply where the consideration for the transfer is an advance under a Type 1 finance arrangement and the transferor (or a partnership of which the transferor is a member) is the borrower under that arrangement.
The rules also do not apply where the consideration is an advance under a Type 2 or Type 3 finance arrangement and the transferor is a member of the partnership receiving that advance.
In essence, where an income stream is transferred as security for a loan or financing advance, rather than as a genuine disposal, the chapter's tax charges are disapplied.
The three types of finance arrangement (Type 1, Type 2 and Type 3) are each separately defined elsewhere in the Act, in sections 758, 763 and 767 respectively.

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