Income and Corporation Taxes Act 1988

[F1785ARent factoring of leases of plant or machineryU.K.

(1)This section applies in any case where the following conditions are satisfied—

(a)a person (call him “P”) is entitled to receive rentals under a lease of plant or machinery,

(b)the rentals, so far as receivable by him, fall to be brought into account as income for the purpose of calculating his tax liability,

(c)P enters into arrangements for the transfer of his right to receive some or all of the rentals to another person,

(d)F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)In any such case, the [F3market value of the rights transferred]—

(a)shall be treated for tax purposes as income of P,

(b)shall be taxable as rentals receivable by P under the lease (apart from any transfer of his right to receive some or all of the rentals), and

(c)shall be brought into account [F4at the time of the transfer].

[F5(2A)But subsection (2) does not apply if and to the extent that any of the market value of the rights transferred is (apart from this section) brought into account—

(a)as income, or

(b)as a capital allowances disposal receipt.]

(3)Any reference to the transfer from P to another person of a right to receive rentals includes a reference to any arrangement under which rental ceases to form part of the receipts taken into account as income for the purposes of calculating P’s tax liability.

(4)Where P is a partnership, any reference in this section to calculating P’s tax liability includes a reference to calculating the tax liability of the partners, notwithstanding that the partnership has legal personality.

(5)A partnership has legal personality for the purposes of subsection (4) above if it is regarded as a legal person, or as a body corporate, under the law of the country or territory under which it is formed.

[F6(5ZA)The references in subsections (1)(c) and (3) to another person include any person in which P has an interest, including any partnership of which P is a member and the trustees of any trust of which P is a beneficiary.]

[F7(5A)This section does not apply in so far as section 774B or 774D (structured finance arrangements) applies in relation to the arrangements mentioned in paragraph (c) of subsection (1) above as a result of the transfer mentioned in that paragraph.]

[F8(5B)This section does not apply in relation to a relevant capital payment to which section 785B below or section 809ZA of ITA 2007 applies; and “relevant capital payment” here has the same meaning as in that section.]

(6)In this section—

  • “capital allowances disposal receipt” means a disposal receipt within the meaning of Part 2 of the Capital Allowances Act 2001 (see section 60 of that Act);

  • “lease” includes an underlease, sublease, tenancy or licence and an agreement for any of those things;

  • “tax liability” means liability to income tax or corporation tax.]

Textual Amendments

F1S. 785A inserted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 2004 (c. 12), s. 135(1)

F2S. 785A(1)(d) omitted (with effect in accordance with Sch. 22 para. 1(6) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 22 para. 1(2)

F3Words in s. 785A(2) substituted (with effect in accordance with Sch. 22 para. 1(6) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 1(3)(a)

F4Words in s. 785A(2)(c) substituted (with effect in accordance with Sch. 22 para. 1(6) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 1(3)(b)

F5S. 785A(2A) inserted (with effect in accordance with Sch. 22 para. 1(6) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 1(4)

F6S. 785A(5ZA) inserted (with effect in accordance with Sch. 22 para. 1(6) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 1(5)