Income Tax Act 2007 section 372B

Purchase and resale arrangements

Section 372B explains how the Community Investment Tax Relief rules apply to Sharia-compliant purchase and resale financing arrangements, by treating them as if they were conventional loans.

• Where one person buys an asset and resells it to another under alternative finance arrangements, the first purchaser is treated as making a loan to the second purchaser, with the loan amount equal to the original purchase price.
• If ownership of the asset transfers in instalments, references to drawing down a loan are read as references to transferring those instalments, with the drawdown amount matching the value of instalments transferred at any given date.
• Each payment of the resale price, after deducting any alternative finance return element, counts as a repayment of loan capital, and the beneficial owner of the loan is treated as the person entitled to receive the resale price.
• If these arrangements qualify as investments under the Community Investment Tax Relief rules, the receipt of the resale price is not treated as the investor receiving value back (which would otherwise trigger a withdrawal or reduction of the tax relief).