Section 763 | Type 2 finance arrangement defined

(1)For the purposes of this Chapter an arrangement is a type 2 finance arrangement if conditions A and B are met.

(2)Condition A is that—

(a)under the arrangement a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,

(b)the transferor or a person connected with the transferor is a member of the partnership immediately after the disposal (whether or not a member immediately before it),^F1

(c)under the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),

(d)there is a relevant change in relation to the partnership (see section 764), and

(e)under the arrangement the share in the partnership's profits of the person involved in the change is determined by reference (wholly or partly) to payments in respect of the security.

(2A)For the purposes of subsection (2)(e) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.^F2

(3)Condition B is that in accordance with generally accepted accounting practice—

(a)the partnership's accounts for the period in which the advance is received record a financial liability in respect of it, and

(b)the payments reduce the amount of the financial liability.

(4)The reference to the partnership's accounts includes a reference to the transferor's accounts.