Capital Allowances Act 2001

[F1 Interpretation U.K.

Textual Amendments

F1 Pt. 2 Ch. 6A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 7

70YE “Minimum lease payments” U.K.

(1) In the case of any lease, the minimum lease payments are the minimum payments under the lease over the term of the lease (including any initial payment) together with—

(a) in the case of the lessee, so much of any residual amount as is guaranteed by him or a person connected with him, or

(b) in the case of the lessor, so much of any residual amount as is guaranteed by the lessee or a person who is not connected with the lessor.

(2) In determining the minimum payments, exclude so much of any payment as represents—

(a) charges for services, or

(b) qualifying UK or foreign tax to be paid by the lessor.

(3) In this section—

• “qualifying UK or foreign tax” means any tax or duty chargeable under the law of any part of the United Kingdom, or under the law of any foreign country, other than—

  (a)

  income tax,

  (b)

  corporation tax,

  (c)

  any tax chargeable under the law of a foreign country which is similar to income tax or corporation tax,

  and here “foreign country” means any territory outside the United Kingdom;

• “residual amount” means so much of the fair value of the plant or machinery subject to the lease as cannot reasonably be expected to be recovered by the lessor from the payments under the lease.

(4) In the definition of “residual amount” in subsection (3), “fair value” means—

(a) the market value of the leased plant or machinery,

less

(b) any grants receivable towards the purchase or use of that plant or machinery.

70YF The “term” of a lease U.K.

(1) The term of a lease is the period comprising—

(a) so much of the post-commencement period as is a non-cancellable period, and

(b) any subsequent periods which meet the conditions in subsection (2).

(2) The conditions are that—

(a) the lessee has an option to continue to lease the asset for the period (whether with or without further payment), and

(b) it is reasonably certain, at the inception of the lease, that the lessee will exercise that option.

(3) The “post-commencement period” is so much of the period of the lease as begins with the commencement of the term of the lease.

(4) A “non-cancellable period” is any period during which the lessee may terminate the lease only—

(a) upon the occurrence of some remote contingency, or

(b) upon payment by the lessee of such an additional amount that, at the inception of the lease, continuation of the lease is reasonably certain.

(5) If, at the commencement of the term of the lease,—

(a) the market value of the asset exceeds £1 million, and

(b) the estimated market value of the asset [F2 7] years after the commencement of the term of the lease is more than half of the market value of the asset at the commencement of the term of the lease,

subsection (6) applies.

(6) If, in any such case, the term of the lease (apart from this subsection) would be [F3 7] years or less, but—

(a) the lessee has one or more options to continue to lease the asset,

(b) on the assumption that it is reasonably certain, at the inception of the lease, that the lessee will exercise those options, the term of the lease would exceed 7 years, and

(c) on failing to exercise any one of those options, the lessee may be required to make a payment to the lessor,

it is to be assumed for the purposes of this section that any option to continue to lease the asset will be exercised, unless it is reasonably certain, at the inception of the lease, that the option will not be exercised.

F4 (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) See also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease).

Textual Amendments

F2 Word in s. 70YF(5)(b) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(a)

F3 Word in s. 70YF(6) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(b)

F4 S. 70YF(7) omitted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 14 para. 8(2)(c)

70YG “Termination amount” U.K.

(1) This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2) Construe “termination amount”, in the case of a long funding lease, in accordance with the following provisions of this section.

(3) If—

(a) the lease terminates as a result of a plant or machinery disposal event, or

(b) a plant or machinery disposal event occurs as a result of, or otherwise in connection with, the termination of the lease,

the termination amount is the disposal value that would have fallen to be brought into account by the lessor by reason of the plant or machinery disposal event on the assumptions in subsection (4).

(4) Those assumptions are—

(a) that section 34A (which prevents the lessor's expenditure for long funding leasing from being qualifying expenditure) did not apply in the case of the lessor, and

(b) that the lessor had claimed all the capital allowances that would in consequence have been available to him.

(5) If—

(a) subsection (3) does not apply, and

(b) the lease is a long funding finance lease,

the termination amount is the value at which, immediately after the termination of the lease, the plant or machinery is recognised in the books or other financial records of the lessor.

(6) If—

(a) subsection (3) does not apply, and

(b) the lease is a long funding operating lease,

the termination amount is the market value of the plant or machinery immediately after the termination of the lease.

(7) For the purposes of this section a “plant or machinery disposal event” is an event that would have been a disposal event in relation to the plant or machinery in the case of the lessor on the assumptions in subsection (4).

70YH “Termination value” U.K.

(1) This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2) Construe “termination value” in accordance with the following provisions of this section.

(3) The general rule is that the termination value of any plant or machinery is the value of the plant or machinery at or about the time when the lease terminates.

(4) Any reference to calculation by reference to the termination value includes a reference to calculation by reference to any one or more of—

(a) the proceeds of sale, if the plant or machinery is sold after the lease comes to an end,

(b) any insurance proceeds, compensation or similar sums in respect of the plant or machinery,

(c) an estimate of the market value of the plant or machinery.

(5) Any reference to calculation by reference to the termination value also includes a reference to—

(a) determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(b) any other form of calculation indirectly by reference to the termination value.

70YI General definitions U.K.

(1) Construe these expressions as follows—

• “absolute owner”, in the application of this Chapter in relation to Scotland, means the owner;

• “arrangement” includes any transaction or series of transactions;

• “background plant or machinery for a building” is to be construed in accordance with sections 70R to 70T;

• “building” includes a reference to—

  (a)

  a structure,

  (b)

  part of a building or structure;

• “commencement”, in relation to the term of a lease, means the date on and after which the lessee is entitled to exercise his right to use the complete leased asset under the lease;

  for this purpose an asset is to be regarded as complete if its construction is substantially complete;

• “derived lease” is to be construed in accordance with section 70L;

• “the finance lease test” means the finance lease test in section 70N;

• “fixture”—

  (a)

  means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

  (b)

  includes any boiler or water-filled radiator installed in a building as part of a space or water heating system;

• “funding lease” has the meaning given by section 70J;

• “inception”, in relation to a plant or machinery lease, means the earliest date on which the following conditions are met—

  (a)

  there is a contract in writing for the lease between the lessor and the lessee,

  (b)

  either—

  (i)

  the contract is unconditional, or

  (ii)

  if it is conditional, the conditions have been met,

  (c)

  no terms remain to be agreed;

• “initial payment”, in the case of a plant or machinery lease, means a payment by the lessee—

  (a)

  at or before the time when the lease is entered into, and

  (b)

  in respect of the plant or machinery which is the subject of the lease;

• “lease” includes any agreement or arrangement which is or includes a plant or machinery lease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

• “lease”, in relation to land, includes—

  (a)

  an underlease, sublease or any tenancy,

  (b)

  in England and Wales or Northern Ireland, an agreement for a lease, underlease, sublease, or tenancy,

  (c)

  in Scotland, an agreement (including missives of let not constituting a lease) under which a lease, sublease or tenancy is to be executed,

  (d)

  in the case of land situated outside the United Kingdom, any interest corresponding to a lease as so defined,

  and “lessor”, “lessee” and other related expressions are to be construed accordingly;

• “lease”, in relation to plant or machinery, includes a sublease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

• “lessee”, in relation to a lease, includes any person entitled to the lessee's interest under the lease;

• “lessor”, in relation to a lease, includes any person entitled to the lessor's interest under the lease;

• “long funding lease” has the meaning given by section 70G;

• [F5 “long funding finance lease” means-

  (a)

  in relation to any person, a long funding lease that meets the finance lease test by virtue of section 70N(1)(a), or

  (b)

  in relation to a lessee, a right-of-use lease which is a long funding lease—

  (i)

  that meets the lease payments test in section 70O or the useful economic life test in section 70P, but

  (ii)

  is not a lease that, before a relevant change of classification, was a long funding operating lease;]

• “long funding operating lease” means a long funding lease which is not a long funding finance lease;

• “market value”, in relation to plant or machinery, is to be construed in accordance with subsection (2);

• “minimum lease payments” has the meaning given by section 70YE;

• “mixed lease” is to be construed in accordance with section 70L;

• “plant or machinery lease” has the meaning given by section 70K (and see also sections 70L and 70M);

• [F6 “relevant change of classification” has the meaning given by section 70YA(11);]

• “remaining useful economic life”, in the case of any leased plant or machinery, is the period—

  (a)

  beginning with the commencement of the term of the lease, and

  (b)

  ending when the asset is no longer used, and no longer likely to be used, by any person for any purpose as a fixed asset of a business;

• [F6 “right-of-use lease” , in relation to a lessee, means a lease in respect of which, under generally accepted accounting practice—

  (a)

  a right-of-use asset falls (or would fall) at the commencement date of the lease to be recognised for accounting purposes in the accounts of the lessee, or

  (b)

  a right-of-use asset would fall to be so recognised but for the lessee granting a sublease of the leased asset,

  and, in determining whether a lease falls within paragraph (a) or (b) at any time in an accounting period, it is to be assumed that the accounting policy applied in drawing up the lessee's accounts for the period also applied at the commencement date of the lease;]

• “short lease” is to be construed in accordance with section 70I;

• “the term”, in relation to a lease, is to be construed in accordance with section 70YF (but see also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease));

• “termination”, in relation to a lease,—

  (a)

  means the coming to an end of the lease, whether by effluxion of time or in any other way, and

  (b)

  includes in particular the bringing to an end of the lease by any person or by operation of law,

  and related expressions are to be construed accordingly;

• “termination amount” is to be construed in accordance with section 70YG;

• “termination value” is to be construed in accordance with section 70YH.

(2) The market value of any plant or machinery at any time is to be determined on the assumption of a disposal by an absolute owner free from all leases and other encumbrances.

(3) In relation to a lease, any reference to plant or machinery includes a reference to fixtures.

F7 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Any necessary apportionments under or by virtue of this Chapter are to be made on a just and reasonable basis.

Textual Amendments

F5 Words in s. 70YI(1) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(5)(a)

F6 Words in s. 70YI(1) inserted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(5)(b)

F7 S. 70YI(4) repealed (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 399, Sch. 3 Pt. 1 (with Sch. 2)

70YJ Power to vary the meaning of certain expressions U.K.

(1) The Treasury may by regulations make provision amending this Chapter so as to vary—

(a) the meaning of “plant or machinery lease”, or

(b) the finance lease test.

(2) A statutory instrument containing regulations under this section is not to be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.]