Norton Rose Fulbright
33 Experts
19 Contributions by Norton Rose Fulbright
PRACTICE NOTES
In aircraft finance transactions, lenders take security as a means of credit enhancement to raise the likelihood that their loan will be repaid in full if the borrower becomes insolvent or falls into payment default.
Important considerations for lenders taking security are:
the validity and enforceability of the security in whichever jurisdiction the aircraft is situated at the relevant time
the security ranking in priority ahead of the borrower’s other creditors, with the aircraft ring-fenced for the secured lender’s benefit
the charged assets not being susceptible to claw-back in any insolvency proceedings of the borrower
Another reason lenders take security over aircraft is the Basel framework (implemented by the EU Capital Requirements Regulation (Regulation (EU) 575/2013) (EU CRR)), which requires in-scope banks to have legally effective and enforceable security over the aircraft in all relevant jurisdictions if they wish to use that security to reduce the risk
Banking & Finance
PRACTICE NOTES
When a lessor places an aircraft on lease, it is concerned to make sure the aircraft is run in a way that does not unduly undermine the market value of the aircraft, and therefore its value as quasi-security, over the term of the lease. As a bare minimum, the lessee will be asked to give an undertaking to the lessor that it will operate the aircraft as follows:
in full accordance with all applicable laws (which includes the laws of the state in which the aircraft is registered as well as those of any jurisdictions in which the aircraft is physically located)
in accordance with all permits or licences which are required by the lessee to operate the aircraft in question
in a way which will not invalidate any warranties granted by a manufacturer in respect of the aircraft
in accordance with the
Banking & Finance
PRACTICE NOTES
Aviation finance is well suited to tax leasing across multiple jurisdictions. Such leases are generally used to defer tax. From a tax viewpoint, they can be beneficial for equity investors who have taxable profits arising from their ordinary business activities. These arrangements can be executed in jurisdictions including Japan, Germany and France. The primary risk with tax leasing emerges if the transaction ends early, as this may prevent equity investors from deferring their tax exposure to the extent and for the period they had planned.
What is a tax lease?
Most tax leases operate as tax deferral structures. They occur when certain entities (equity investors) enter a transaction with the specific aim of creating an immediate tax loss, which they can offset against taxable profits from their normal course of business. At a later point, the transaction is expected to generate profits and, at that stage, the
Banking & Finance
PRACTICE NOTES
There are two main types of aircraft finance structure:
secured lending, under which the lender advances funds to the purchaser to acquire the aircraft and takes security over the asset, and
leasing, which in many cases provides greater flexibility to financiers in many instances
Difficulties with secured lending
Secured loan structure
Under a conventional secured loan arrangement, the lender will lend money to the prospective owner of the aircraft to fund its purchase or acquisition by the borrower. In return for making the finance available, the lender will typically then take first‑priority security generally by way of a mortgage over, and in respect of, the aircraft (see Practice Note: Taking security over aircraft in aviation finance transactions). Once the loan has been paid in full, together with any other sums due under the transaction documents, the lender will release the aircraft from the mortgage, with
Banking & Finance
PRACTICE NOTES
Non-compliance with emissions trading schemes may lead to civil penalties, operational prohibitions or the detention of aircraft. Accordingly, financiers need a clear grasp of the duties imposed on aircraft operators (and, in some cases, owners) by the applicable schemes and of the accompanying enforcement tools, so that these risks are properly catered for in their finance documentation. This Practice Note sets out the principal components of the leading emissions trading regimes relevant to aviation finance deals. It addresses:
the EU emissions trading system (EU ETS)
the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) (and its integration into the EU ETS)
the UK emissions trading system (UK ETS)
Introduction to the key emissions trading schemes
The EU ETS, CORSIA and the integration of CORSIA into the EU ETS
The relationship between these regimes, including how CORSIA is integrated into the EU ETS, is
Banking & Finance
PRACTICE NOTES
The core of aviation finance is a lender advancing funds to a borrower to finance, or refinance, the purchase of an aircraft. If the borrower defaults under the loan, the contractual documents and transaction structure are designed to give the lender prioritised access to the aircraft, or its sale proceeds, to recover outstanding sums...
This is a classic asset finance model (see Practice Note: Introductory guide to asset finance): the lender accepts the borrower’s credit risk, supported by security over the aircraft. Yet aviation finance has evolved distinct legal and structural features that differentiate it from other financing techniques...
Specificities of aviation finance
These can be summarised as follows...
Future value
Aircraft are generally regarded as retaining future value better than many other asset classes. While much turns on the specific aircraft type and the engines fitted, lenders can usually forecast an aircraft’s likely market value over the life of the
Banking & Finance
PRACTICE NOTES
Cape Town Convention
The Convention on International Interests in Mobile Equipment (the Convention), alongside the related Protocol to the Convention on Matters Specific to Aircraft Equipment (the Protocol), together more widely known as the Cape Town Convention, entered into effect on 1 March 2006. This Cape Town Convention sets out a harmonised body of rules that govern the creation, safeguarding, ordering and enforcement of specified rights relating to aircraft and aircraft engines. A central feature is the establishment of the International Registry for aircraft objects, through which certain classes of interest can be registered, including the recording of a security interest in an aircraft. It also affords protection to creditors in circumstances of default or where insolvency may then arise...
Banking & Finance
PRACTICE NOTES
Residual value agreements are a practical mechanism for apportioning an aircraft’s residual value risk.
The main purposes for deploying residual value agreements are:
to deliver added protection for financing parties within a specific aviation finance transaction
in operating leases, to minimise a lessor’s exposure to residual value risk
to give an airline reassurance about the worth of its investment in a fleet of aircraft
There are multiple forms of residual value agreement. Each allocates risk in different ways and to different parties within the transaction. Such arrangements appear in several variants, each designed to apportion residual value risk differently between stakeholders.
What is a residual value agreement?
Within aviation finance transactions, residual value agreements distribute the residual value risk in an aircraft among various parties, or transfer that risk to a third party, such as an insurer...
Banking & Finance
PRACTICE NOTES
Commercial aircraft can be funded through a variety of channels, including backing from governmental or quasi-governmental bodies known as export credit agencies (ECAs). The extent of ECA involvement in aircraft financing generally shifts with the supply of commercial funding available in the market. During periods of financial stress, when private finance is harder to secure, the share of aviation transactions supported by ECAs typically rises, and the reverse applies in stronger conditions. In recent years, the level of ECA support has moved more sharply than usual. Historically, the principal ECA-backed aircraft finance transactions related to Airbus and Boeing fleets. As many Airbus models are partly produced in the UK, France and Germany, the ECAs most commonly involved in financing Airbus aircraft have traditionally been:
Export Credits Guarantee Department (ECGD), a department of the UK government trading as UK Export Finance (for further
Banking & Finance
PRACTICE NOTES
ARCHIVED –
This archived practice note sets out information on EU competition law as it relates to big data and algorithms, reflecting the state of play at publication on 11 November 2017 and the position applicable. It is not maintained. As ‘big data’ becomes increasingly pivotal for uses across sectors, authorities, academics and practitioners have, in recent years, intensified their scrutiny of the antitrust consequences for policy and enforcement arising from big data and the algorithms used to analyse it. In September 2016, EU Competition Commissioner Margrethe Vestager pledged to ‘keep a close eye on how companies use data’, and several European competition authorities have undertaken, or in some instances continue to undertake, inquiries and studies on big data matters within jurisdictions. Two principal categories of concern have been highlighted by authorities and commentators:
the deployment of algorithms processing big data may
Competition
PRACTICE NOTES
The Islamic finance sector has expanded swiftly in recent years, as financial institutions and their customers look to explore alternative ways of financing and raising funds. It is an asset‑based system, and Islamic finance has seen rising deployment for both full and partial funding of aircraft—assets regarded as permissible investments under Islamic law (Shariah).
Principles of Islamic finance
The principles of Islamic finance are drawn from Shariah as prescribed in the Quran, the sacred scripture of Islam believed to record the Word of God revealed to the Prophet Mohammed, together with the Sunnah, the traditions and practices of the Prophet Mohammed. These sources set out the principles applied to finance. Islamic finance is established to ensure that wealth remains pure and is utilised justly, in accordance with these overarching principles, safeguarding fairness in application and conduct:
No unjust
Banking & Finance
PRACTICE NOTES
Such agreements are concluded between an aircraft manufacturer (the seller) and a customer (the purchaser). In the majority of situations, the customer will be an airline or an operating lessor, although the purchaser can equally be a different entity, such as a governmental body. The terms and conditions of aircraft purchase agreements are commonly kept confidential as between the aircraft manufacturer and the customer and are seldom made public. The bulk of those provisions will typically not be disclosed to any financier of the customer, even where that financier is providing the customer with funding in relation to an aircraft to be acquired pursuant to the terms of that purchase agreement.
An aircraft manufacturer will generally have a standard form purchase agreement that it enters into with all of its customers. Nevertheless, particular commercial terms are negotiated between the parties, and letter
Banking & Finance
PRACTICE NOTES
Pre‑delivery payment financing (PDP financing) has become a widely used funding tool for airlines and lessors. However, as the number of PDP transactions has risen, aircraft manufacturers have applied closer scrutiny to the industrial and commercial matters that arise when a financier participates in aircraft purchase arrangements.
As a result, any PDP financing may involve significant commercial points to negotiate, together with, at times, complex legal questions, particularly in relation to security.
PDP financing, and the protections open to any lender, differ substantially from other forms of aviation finance. Funding is supplied while the asset is still under construction, and security cannot be taken in the same way as for a completed aircraft. Therefore, the provisions setting out the steps to be taken on enforcement are of fundamental importance to the manufacturer, the purchaser and the lender.
PDPs and purchase agreements What are
Banking & Finance
PRACTICE NOTES
Contracts for the sale of second hand aircraft are concluded between an aircraft owner (as the seller) and, in the majority of situations, an airline or an aircraft leasing company (as the buyer). The parties usually keep the terms of such agreements confidential; however, where the buyer has a lender, certain provisions will be revealed to that lender if it is providing the airline with funding in relation to an aircraft to be acquired pursuant to the purchase agreement. There is no single standard form of agreement for second hand aircraft, though some sellers maintain a preferred form of purchase agreement that they seek to use with customers. The requirements of different participants in respect of second hand aircraft sales and purchases, as well as the commercial particulars of these transactions, vary markedly, and are considered in greater detail below.
Key
Banking & Finance
PRACTICE NOTES
Types of special purpose vehicle and orphan trust
The deployment of special purpose vehicle structures is widespread in aviation finance. They offer lenders several advantages, including tax benefits and a bankruptcy-remote platform for the financing. A special purpose vehicle (SPV), also known as a single purpose company (SPC), is a legal entity established for a limited aim; in aviation finance this is commonly to own an aircraft for a particular transaction. There are numerous forms of SPV used in aviation finance, with the principal categories being:
subsidiary companies
orphan trusts
limited partnerships
Each of these is considered below. The type of SPV selected will vary on a transaction-by-transaction basis.
Subsidiary companies
Subsidiary companies are typically limited liability companies incorporated in a tax-friendly jurisdiction...
Banking & Finance
PRACTICE NOTES
Operating leases are widely used across the airline sector. Because aircraft have long service lives, a mature marketplace for trading pre-owned aircraft has emerged. For a lessee, the essentials are that the leased aircraft is airworthy and that it can operate it without interference from the lessor. For a lessor, the fundamentals are being paid for the lessee’s use of the aircraft and avoiding any loss arising from the lessee’s operation of the aircraft.
This Practice Note sets out what an operating lease is, how it contrasts with other leasing structures, and the core concepts underpinning the business of operating lessors. It highlights the principal clauses typically found in operating leases, including delivery condition, quiet enjoyment, rent and deposits, and operational indemnities. It also addresses key provisions on subleasing and events of default.
The business of operating
Banking & Finance
PRACTICE NOTES
To operate an aircraft across borders, the owner must register it with an aviation authority. While international conventions exist, the form of the register, the procedures for registration and deregistration, and the criteria for keeping a registration valid differ between countries, so the chosen state of registration requires careful consideration by any aircraft owner.
Why do you register aircraft and where do you do it?
In 1944, the Convention on International Civil Aviation took place in Chicago (the ‘Chicago Convention’). It led to the creation of the International Civil Aviation Organisation, a specialised United Nations agency responsible for coordinating and regulating international air travel. Under Article 20 of the Chicago Convention, to which the UK is a signatory, every aircraft engaged in international air navigation must carry appropriate nationality and registration marks. Therefore, all aircraft must be registered with an aviation authority to fly
Banking & Finance
PRACTICE NOTES
Aircraft represent high-value assets, vulnerable to damage and capable of causing significant destruction. Securing appropriate insurance is therefore essential for financiers; policy wording and its legal impact often warrant closer scrutiny than is usual in other forms of asset finance. This Practice Note addresses insurance where an aircraft owner, as lessor, leases an aircraft to an airline as lessee. If a bank or other lender has financed the aircraft, the matters identified as relevant to a lessor will likewise apply to the aircraft financier. This is because, in many aviation finance structures, the financier will typically take security over the lessor’s rights against the lessee under the lease...
The nature of insurance contracts
An insurance contract is an agreement to indemnify against loss arising from specified perils (for example, loss resulting from damage to, or destruction of, the insured asset). The contract is formed between the
Banking & Finance
PRACTICE NOTES
Registration of aircraft mortgages at the Civil Aviation Authority (CAA)
This Practice Note explains how to record aircraft mortgages with the Civil Aviation Authority (CAA) within a typical aviation finance deal. It does not address every action that might be necessary to perfect security over an aircraft. For guidance on filing security at Companies House, and on how that filing interacts with entry on the UK Register of Aircraft Mortgages, consult Practice Note: Perfecting security over aircraft and registering security on the UK Register of Aircraft Mortgages. See also Practice Note: Aviation finance and the Cape Town Convention. The CAA is responsible for keeping the United Kingdom Register of Civil Aircraft (the ‘Register’). The Register contains entries where an aircraft serves as collateral for a mortgage or loan. It does not, however, record other categories of security interest, for example liens over the
Banking & Finance
43 Contributions by Norton Rose Fulbright Experts
PRACTICE NOTES
ARCHIVED: This Practice Note has been archived and is not maintained.
NOTE: On 5 September 2023, CIETAC announced amendments (the Revisions) to its existing 2015 arbitration rules, prompted by the need for greater adaptability and efficiency in the digital age and by evolving international arbitration practice, following a revision plan launched in April 2021.
Spanning over 30 provisions, the Revisions address:
digital case management
multi-tiered arbitration agreements
jurisdiction
multi-contract arbitrations
arbitral procedures
other challenging issues
The Revisions take effect on 1 January 2024 and apply to all CIETAC arbitrations commenced from that date. CIETAC’s current arbitration rules have applied since 1 January 2015 (the CIETAC Rules 2015). This Practice Note is UNDER REVIEW—it presently reflects CIETAC’s structure and role as described in the CIETAC Rules 2015. It covers arbitration under the CIETAC Arbitration Rules 2015 (CIETAC Rules), which govern
Arbitration
PRACTICE NOTES
This Practice Note is confined to arbitrations conducted under the CIETAC Arbitration Rules 2024 (the CIETAC Rules). Those Rules govern cases accepted by CIETAC on or after 1 January 2024, or where the parties have expressly chosen to use the CIETAC Arbitration Rules 2024 (CIETAC, art 88). The 2015 rules continue to apply to matters accepted by CIETAC from 1 January 2015 up to 31 December 2023. This Practice Note addresses international or foreign-related disputes, and those linked to Hong Kong SAR, Macao SAR, or the Taiwan region (CIETAC, art 3). CIETAC provides distinct rules for summary arbitration (see Practice Note: CIETAC (2024)—summary procedure (and early dismissal)) and for domestic arbitration; these fall outside the scope of this Practice Note. Arbitrations administered by the CIETAC Hong Kong Arbitration Centre are likewise governed by separate provisions (CIETAC, art 73) and are not
Arbitration
PRACTICE NOTES
It has long been standard for administrators and liquidators to try to cap their personal liability when entering contracts on a company’s behalf. In addition, office-holders frequently seek to limit liabilities incurred during an administration or liquidation where such liabilities would otherwise rank as an expense of the process. Expense claims sit only behind fixed charge claims and, in many cases, come ahead of the insolvency office-holder’s remuneration. This Practice Note considers the use of exclusion clauses intended to contract out of expense claims, summarising the history of the practice, the practical issues that may arise, and points for counterparties to weigh when agreeing such terms...
Background to the practice
In the course of an administration or liquidation, an office-holder may enter into numerous contracts for the company while exercising their powers and functions. The two principal categories are those for the
Restructuring & Insolvency
PRACTICE NOTES
Regulating, Consenting and Incentivising the Energy Transition
For comprehensive analysis of how the net zero energy transition is regulated, consented and incentivised under the laws of England and Wales, see also Collinson and Hockman on Energy Law: Regulating, Consenting and Incentivising the Energy Transition. The textbook contains thorough discussion of matters addressed in this Practice Note.
This tracker summarises major developments and expected forthcoming actions relating to low carbon hydrogen in Great Britain (GB) since the Ten Point Plan for a Green Industrial Revolution, published in November 2020. It sets out policy and legislative moves led by the Department for Energy Security and Net Zero (DESNZ) and its predecessor, the Department for Business, Energy and Industrial Strategy (BEIS), alongside relevant measures from the Welsh and Scottish governments where hydrogen is a devolved matter, plus pertinent updates from Ofgem. The tracker spans a suite of low carbon
Energy
PRACTICE NOTES
This Practice Note outlines green loans and the principal considerations when preparing a green loan agreement. It centres on the Green Loan Principles (GLP) issued by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA)...
Clarifies the meaning of a green loan
Introduces the GLP and the accompanying GLP guidance
Sets out the four core components of a green loan under the GLP and summarises the related guidance
Condenses GLP and GLP guidance on what qualifies as a green loan, on reviews, and on greenwashing risks
Provides sources for precedent wording, including the Loan Market Association draft provisions, plus drafting pointers
What is meant by a green loan?
Under the GLP, green loans encompass any form of loan instrument and/or contingent facility (for example, bonding lines, guarantee lines or
Banking & Finance
PRACTICE NOTES
ARCHIVED: This Practice Note has been archived and is not maintained
NOTE: On 5 September 2023, CIETAC announced revisions (the Revisions) to its 2015 arbitration rules, aiming to enhance flexibility and efficiency for the digital era and to reflect developments in international arbitration, following a revision programme begun in April 2021. Covering more than 30 provisions, the updates address:
digital case management
multi-tiered arbitration agreements
jurisdiction
multi-contract arbitrations
arbitral procedures
other challenging issues
The Revisions will take effect on 1 January 2024 and will apply to all CIETAC arbitrations commenced from that date. CIETAC’s current arbitration rules have been in force since 1 January 2015 (the CIETAC Rules 2015). This Practice Note is UNDER REVIEW—it presently reflects CIETAC’s structure and role as described in the CIETAC Rules 2015. It addresses arbitration under the CIETAC Arbitration Rules 2015 (CIETAC Rules), which, in
Arbitration
PRACTICE NOTES
Investments trusts
Investment trusts are typically organised as companies with no fixed lifespan. As a result, investors generally realise their holding only by selling shares on the relevant stock exchange. The market price may not fully reflect the net asset value (NAV) of the underlying investments and, in many instances, shares trade at a discount to NAV.
To help investors realise full NAV, some trusts are established with a fixed life, meaning the company will be liquidated/wound up on a pre-determined date.
Alternatively, liquidation/winding-up can occur in response to shareholder demand, with realised assets distributed to investors even though this was not anticipated at inception.
When a winding-up is proposed, there is often a parallel reconstruction, giving investors the option to roll-over their investment into a new vehicle...
Tax
PRACTICE NOTES
The use of invoice discounting and factoring of receivables as business finance has expanded markedly in the UK over the past 25 years.
Introduction to receivables purchase transactions
Invoice discounting and factoring fall within receivables purchase arrangements under which a supplier of goods and/or services (often called the seller or the supplier) transfers, typically by way of assignment, debts owed to it by the purchaser of those goods and/or services (commonly referred to as the buyer or the account debtor), usually together with all associated rights.
These receivables purchases are frequently completed at a discounted purchase price. That said, receivables can also be acquired for an amount equal to their face value, with the supplier paying the purchaser a purchase fee. For a variety of reasons, suppliers may opt to sell receivables (on a no recourse or limited recourse basis) in preference to
Banking & Finance
PRACTICE NOTES
ARCHIVED: This archived Practice Note reviews the administration of Monarch Airlines that occurred in 2017. It is not being maintained and is provided solely for background reference. It forms part of a broader suite of Practice Notes on airline insolvency. For further details, see:
Guide to airline insolvency—introduction
Guide to airline insolvency—insolvency processes, receivership, restructuring plans and schemes of arrangement
Guide to airline insolvency—international considerations
Background and lead-up to administration
Before entering administration on 2 October 2017, Monarch Airlines operated scheduled services for tour operators, travel agents and direct customers, flying to and from five UK airports—Birmingham, Leeds-Bradford, Gatwick, Luton and Manchester—to 44 destinations, the majority in the Mediterranean and the Canary Islands. In common with many carriers worldwide, it faced tough market conditions and undertook a significant restructuring in 2014. The group returned to profit in 2015. However,
Restructuring & Insolvency
PRACTICE NOTES
STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime
Finance Act 2025 (FA 2025), which received Royal Assent on 20 March 2025, delivers the repeal of the remittance basis and introduces a residence-based system with effect from 6 April 2025. FA 2025 also replaces domicile as the principal criterion for determining exposure to inheritance tax.
Updates to the rules for determining excluded property status
Abolition of the protected settlements status for offshore trusts
Changes to overseas workday relief
For details on these measures, see: Practice Notes: The abolition of the remittance basis of taxation from 2025–26 and A new residence-based regime for IHT from 2025–26.
A non-reporting offshore fund is any offshore fund that does not have reporting fund status for a particular period of account. For what constitutes an offshore fund, see Practice Note: Tax and offshore
Tax
PRACTICE NOTES
In order to keep reporting fund status, a reporting fund must meet ongoing obligations laid out in Part 3 of the Offshore Funds (Tax) Regulations 2009, SI 2009/3001 (the Offshore Funds Regulations). These cover the fund’s accounting policy, the duty to compute ‘reportable income’, and the obligation to provide reports and specified information to investors and HMRC. Observing these obligations is considered essential to ensure the reporting fund regime operates as intended. Because offshore funds are otherwise outside HMRC’s jurisdiction (by virtue of being ‘offshore’), the offshore funds legislation equips HMRC with sanctions to deal with any failures to meet these obligations. Where a reporting fund falls short of the stipulated requirements, the aim is that any outcome should be fair and proportionate. Failures are therefore categorised as ‘minor’ or ‘serious’. Where a reporting fund commits a ‘serious’ failure of the
Tax
PRACTICE NOTES
This Practice Note forms part of a wider suite of Practice Notes on airline insolvency; for additional detail, see Practice Notes:
Guide to airline insolvency—introduction
Guide to airline insolvency—international considerations and implications for office-holders
Insolvency proceedings
Commencement of insolvency proceedings concerning an airline can carry differing implications for a financier, which will turn on both the category of procedure used and the way in which it is brought. Within the UK, the processes most often encountered in airline insolvencies are administration, liquidation and receivership (acknowledging that the last is, strictly, a contractual remedy rather than a formal insolvency process). Following the Corporate Insolvency and Governance Act 2020 (CIGA 2020), a company may enter a standalone moratorium intended to provide limited protection from certain creditor claims and enforcement steps. To date, there have been no recorded instances of an airline entering such a moratorium. The UK’s 2015
Restructuring & Insolvency
PRACTICE NOTES
To secure, and then retain, approval as an investment trust for UK tax, a company must meet specific eligibility tests set out in the Corporation Tax Act 2010 (CTA 2010), and comply with a range of continuing obligations under the Investment Trust (Approved Companies) Tax Regulations, SI 2011/2999 (the Investment Trust Regulations). For further detail on those tests and obligations, see Practice Note: Tax and investment trusts—what are investment trusts? This Practice Note explains the consequences where an approved investment trust breaches any of those eligibility tests or does not satisfy one or more of the continuing obligations. It also describes the position where an approved investment trust submits returns on the footing that it is not an approved investment trust for tax purposes. For guidance on applying for investment trust approval, see Practice Note: Tax and investment
Tax
PRACTICE NOTES
An investment trust is a collective investment vehicle structured as a quoted UK tax-resident company. Despite the name, it is not a trust in legal terms. Where HMRC approval is obtained, investment trusts benefit from exemption from tax on chargeable gains. For further detail on what investment trusts are, as well as the qualifying conditions and ongoing obligations they must meet, see Practice Note: Tax and investment trusts—what are investment trusts?
This Practice Note sets out the specific tax rules for approved investment trusts in relation to:
tax on chargeable gains
tax on income, in particular the treatment of:
distributions received
trading versus investment transactions
loan relationships and derivative contracts
holdings in
Tax
PRACTICE NOTES
Investment trust
An investment trust is a collective investment vehicle structured as a listed, UK tax-resident public limited company. Despite the label, in legal terms an investment trust is a company rather than a trust. The expression stems from a period when these vehicles were established as trusts, but they later converted to limited companies and therefore are no longer trusts in any legal sense. Where HMRC grants approval to an investment trust, it can access certain UK tax advantages. This Practice Note sets out the eligibility criteria that must be met for a fund to obtain approval as an investment trust for UK tax purposes. It also addresses the continuing requirements that must be satisfied in every accounting period for which the vehicle holds that approval...
Tax
PRACTICE NOTES
Low Carbon Hydrogen Agreement (LCHA)
For fuller analysis of how regulation, consenting and incentivisation shape the net zero energy transition in England and Wales, see: Collinson and Hockman on Energy Law: Regulating, Consenting and Incentivising the Energy Transition. That textbook offers extensive treatment of topics addressed in this Practice Note. This Practice Note sets out a synopsis of the Low Carbon Hydrogen Agreement (LCHA), the principal support mechanism within the UK for subsidising low carbon hydrogen production schemes. It assumes project finance will be pursued and therefore addresses matters of interest to project finance lenders alongside hydrogen producers and wider stakeholders. It contains a thorough examination of the LCHA’s framework and objectives, eligibility conditions, the principal counterparties, and the payment architecture—covering the Difference Amount, the Price Discovery Incentive and the Sliding Scale Top-Up Amount. It also considers the headline terms and
Energy
PRACTICE NOTES
Collinson and Hockman on Energy Law: Regulating, Consenting and Incentivising the Energy Transition
For an in-depth examination of regulation, consenting and incentivisation of the net zero energy transition under the laws of England and Wales, see also the above work. That textbook offers detailed analysis of matters addressed in this Practice Note. This Practice Note sets out an overview of the principal revenue support mechanisms being developed by the UK government for low carbon hydrogen schemes in the UK, together with the pathways by which such funding is granted and the associated processes through which awards are made. It concentrates on the business model for qualifying projects falling within hydrogen production, and outlines the proposed business models for hydrogen transport, hydrogen storage and hydrogen to power (H2P) generation. It also covers the Low Carbon Hydrogen Standard (LCHS), the Low Carbon Hydrogen
Energy
PRACTICE NOTES
For comprehensive analysis and detailed commentary on regulatory approval, consenting and incentivisation supporting the net‑zero energy transition under the law of England and Wales, refer also to the volume: Collinson and Hockman on Energy Law: Regulating, Consenting and Incentivising the Energy Transition. The textbook provides extensive treatment and more detailed discussion of matters addressed in this Practice Note.
This Practice Note offers an introductory overview of low‑carbon hydrogen projects in the UK. It sits within a suite of related Practice Notes on low‑carbon hydrogen projects, the following:
Low carbon hydrogen projects—UK revenue and funding support
Low carbon hydrogen projects—the Low Carbon Hydrogen Agreement (LCHA)
It sets out why developers and investors might be attracted to these projects; the range of hydrogen production methods that influence how hydrogen is categorised within a colour framework; the use cases for low‑carbon hydrogen and the project types now
Energy
PRACTICE NOTES
Reporting fund regime
UK holders in ‘reporting’ offshore funds are assessed to tax each year on their share of the fund’s ‘reported income’, whether this is distributed or retained. This permits them to obtain capital gains treatment when they dispose of their holding. By contrast, when UK investors in ‘non-reporting’ offshore funds realise gains on disposals of their interests, those gains are taxed as income rather than as capital gains; such amounts are termed ‘offshore income gains’. Offshore funds must apply for, and be granted, reporting fund status.
For who is eligible and how to apply for reporting fund status, see Practice Note: Tax and offshore funds—the reporting fund regime.
For details on non-reporting offshore funds and how their investors are taxed, see Practice Note: Tax and offshore funds—non-reporting funds.
For an outline of what constitutes an offshore fund, see Practice Note: Tax and offshore
Tax
PRACTICE NOTES
Background to the UK’s offshore funds rules
Targeted tax legislation for offshore funds first appeared in 1984. Up to that point, UK investors in non‑UK investment vehicles could accumulate income offshore and, when their holdings were realised (for example on a sale of their interest), the proceeds were charged at capital gains rates rather than income tax rates. The 1984 'offshore funds' regime addressed this position by treating as income any gains arising on disposals of material interests in 'offshore funds'. For tax purposes, the notion of an 'offshore fund' was anchored to a regulatory definition for the sector. Certain provisions offered an exception from that treatment where a particular offshore fund distributed at least 85% of its income and UK‑equivalent profits to investors each period. Where a fund made such distributions, an investor's disposal of their interest continued to receive capital gains tax
Tax
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