Alternative finance arrangements
The measure
The Government announces further proposed measures today in relation to alternative financial arrangements, broadly meaning Islamic finance transactions. Both primary legislation and regulations have already been introduced with the aim of treating Islamic finance transactions as the same as conventional loan relationships for tax purposes.
One proposed measure relates to a particular property refinancing transaction where the owner of a property sells that property to a financial institution and rents it back for a temporary period before then buying it back permanently. Without a change to the current rules the initial disposal could have capital gains consequences. The change would tax the parties as if the transaction was a loan, which has the same economic characteristics.
A further proposed measure will be to provide guidance relating to the VAT treatment of Islamic bonds or 'sukuk' bonds, with a view to providing consistency of VAT treatment for Islamic finance products and conventional loans.
Who will be affected?
Taxpayers entering into alternative financing transactions and the financial institutions offering such transactions are likely to be impacted.
When?
No timescale has been set for these changes.
The proposed changes give these alternative financing transactions the same tax treatment as conventional loans and as such are welcomed in offering greater certainty of tax treatment to taxpayers for these transactions and alternative financing arrangements more generally.
