What type of arrangement does section 242 of TIOPA 2010 define?

Section 242 defines a specific type of deduction scheme that involves the transfer of rights under a security, such as a loan relationship or debt instrument, as part of an arrangement designed to generate a tax deduction. It is the last of seven sections defining deduction schemes under the anti-avoidance rules in this part of the Act.

How does section 242 extend the definition of security beyond section 259?

While the general definition of security in section 259 covers loan relationships and similar debt instruments, subsection (8) of section 242 extends that definition further for the purposes of this particular section. This ensures a broader range of financial instruments is captured, widening the scope of arrangements that qualify as deduction schemes.

What is the policy purpose behind section 242 of TIOPA 2010?

The policy concern is that taxpayers might use arrangements involving transfers of rights under securities to create tax deductions not reflecting genuine economic losses. By classifying such arrangements as deduction schemes, section 242 ensures they fall within the scope of the anti-avoidance provisions, preventing artificial tax advantages.

What is the legislative origin of section 242 of TIOPA 2010?

Section 242 originates from paragraphs 9 and 11 of Schedule 3 to the Finance (No 2) Act 2005. The provisions were subsequently amended by the Finance Act 2016 and rewritten into the Taxation (International and Other Provisions) Act 2010 as part of the consolidation of United Kingdom international tax legislation.

Taxation (International and Other Provisions) Act 2010 section 242

Scheme including transfer of rights under a security

Section 242 defines a type of "deduction scheme" that involves transferring rights under a security, such as a loan or debt instrument, as part of a tax avoidance arrangement.

This section is one of seven sections that together define the various types of "deduction scheme" relevant to the anti-avoidance rules in this part of the Act.
The scheme involves a transfer of rights under a security — broadly, a loan relationship or similar debt instrument — where the transfer forms part of an arrangement designed to generate a tax deduction.
The definition of "security" used throughout this part of the Act is found in section 259, but for the purposes of this particular section, the definition is extended by subsection (8) to capture a wider range of instruments.
The provisions originate from paragraphs 9 and 11 of Schedule 3 to the Finance (No 2) Act 2005 and were amended by Finance Act 2016.

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