Taxes Consolidation Act 1997 section 267P

Treatment of credit transaction

Section 267P sets out the tax treatment of credit transactions carried out under Islamic finance arrangements, covering capital allowances, capital gains tax, losses, benefit in kind, and borrowing to invest.

• Credit transactions are treated as loans for benefit in kind purposes (section 122) and for claiming interest relief on borrowings used to invest in other companies (Part 8, section 247).
• The finance undertaking cannot claim capital allowances on assets acquired for credit transactions, and asset acquisitions and disposals by the finance undertaking are treated as trading transactions to prevent capital gains tax charges.
• The borrower can claim capital allowances where the borrower and the finance undertaking jointly acquire a new asset, but the borrower cannot claim a loss on the onward sale of an asset acquired from the finance undertaking to generate cash.
• The borrower may only deduct the credit return (i.e. the finance undertaking's profit element) from taxable profits, not the full amount of capital repayments made to the finance undertaking.