Part 6Relationships treated as loan relationships etc
Chapter 6Alternative finance arrangements
Arrangements that are alternative finance arrangements
504Diminishing shared ownership arrangements
1
This section applies to arrangements if under them—
a
a financial institution (“the first owner”) acquires a beneficial interest in an asset,
b
another person (“the eventual owner”) also acquires a beneficial interest in it,
c
the eventual owner is to make payments to the first owner amounting in aggregate to the consideration paid for the acquisition of the first owner's beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),
d
the eventual owner is to acquire the first owner's beneficial interest (whether or not in stages) as a result of those payments,
e
the eventual owner is to make other payments to the first owner (whether under a lease forming part of the arrangements, or otherwise),
f
the eventual owner has the exclusive right to occupy or otherwise to use the asset, and
g
the eventual owner is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).
2
For the purposes of subsection (1)(a) it does not matter if—
a
the first owner acquires its beneficial interest from the eventual owner,
b
the eventual owner, or another person who is not the first owner, also has a beneficial interest in the asset, or
c
the first owner also has a legal interest in it.
3
Subsection (1)(f) does not prevent the eventual owner from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.
4
The conditions are that—
a
the grant is not to—
i
the first owner,
ii
a person controlled by the first owner, or
iii
a person controlled by a person who also controls the first owner, and
b
the grant is not required by the first owner or arrangements to which the first owner is a party.
5
Subsection (1)(g) does not prevent the first owner from—
a
having responsibility for any reduction in the asset's value, or
b
having a share in a loss arising out of any such reduction.
6
This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from section 503, this section and sections 505 to 507).