Taxation (International and Other Provisions) Act 2010 Schedule 2 Part 1

New Part 10A of ITA 2007 – Alternative finance arrangements

Schedule 2 Part 1 inserts a new Part 10A into the Income Tax Act 2007, establishing the income tax rules for alternative finance arrangements — Sharia-compliant and similar financial products — ensuring they receive broadly the same tax treatment as conventional interest-bearing finance.

• Five types of alternative finance arrangement are defined: purchase and resale, diminishing shared ownership, deposit arrangements, profit share agency, and investment bond arrangements, each involving at least one financial institution
• The "alternative finance return" — the financial institution's profit element in each arrangement — is treated as interest for income tax purposes, allowing tax relief for those paying it and bringing it into charge for those receiving it
• Special rules apply to investment bond arrangements, treating them as securities rather than trusts or collective investment schemes, and handling any discount element separately from the alternative finance return
• An anti-avoidance rule excludes arrangements from the alternative finance regime where transfer pricing adjustments apply and the person receiving the return is not subject to UK or equivalent foreign tax on it

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