Income and Corporation Taxes Act 1988

Other provisions U.K.

775 Sale by individual of income derived from his personal activities. U.K.

F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 775 repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 182, Sch. 3 Pt. 1 (with Sch. 2)

[F2 775A Transfers of rights to receive annual payments U.K.

(1) This section applies in any case where—

(a) a person sells or transfers the right to receive an annual payment to which this section applies (see subsection (4)), and

(b) the consideration (if any) for the sale or transfer would not, apart from this section, be chargeable to tax.

(2) In any such case, tax is charged—

(a) in the case of income tax, under this section; or

(b) in the case of corporation tax, under Case III of Schedule D.

(3) Where this section applies—

(a) the tax is charged on an amount equal to the market value of the right to receive the annual payment;

(b) the tax is charged for the chargeable period in which the sale or transfer takes place;

(c) the person liable for the tax is the person who sells or transfers the right to the annual payment.

(4) This section applies to any annual payment other than—

(a) an annual payment under a life annuity;

(b) an annual payment under a pension annuity;

(c) an annual payment to which section 347A applies [F3 (certain annual payments not to form part of the income of a company for corporation tax purposes)];

(d) an annual payment in respect of which, by virtue of section 727 of ITTOIA 2005 (payments by individuals arising in UK), no liability to income tax arises under Part 5 of that Act.

(5) This section applies in relation to part of an annual payment as it applies in relation to the whole of an annual payment.

(6) For the purposes of this section, a sale or transfer of all rights under an agreement for annual payments, or under an annuity, is a sale or transfer of the rights to each individual payment under the agreement or annuity.

(7) In this section—

• “life annuity” means—

  (a)

  a life annuity, as defined in section 657(1); or

  (b)

  a life annuity, as defined in section 473(2) of ITTOIA 2005;

• “pension annuity” means an annuity which is pension income within the meaning of Part 9 of ITEPA 2003 (see section 566(2) of that Act).]

Textual Amendments

F2 S. 775A inserted (with effect in accordance with Sch. 7 para. 4(2) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 7 para. 4(1)

F3 Words in s. 775A(4)(c) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 183 (with Sch. 2)

776 Transactions in land: taxation of capital gains. U.K.

M1 (1) This section is enacted to prevent the avoidance of tax by [F4 companies] concerned with land or the development of land.

(2) This section applies wherever—

(a) land, or any property deriving its value from land, is acquired with the sole or main object of realising a gain from disposing of the land; or

(b) land is held as trading stock; or

(c) land is developed with the sole or main object of realising a gain from disposing of the land when developed;

and any gain of a capital nature is obtained from the disposal of the land—

(i) by the person acquiring, holding or developing the land, or by any connected person, or

(ii) where any arrangement or scheme is effected as respects the land which enables a gain to be realised by any indirect method, or by any series of transactions, by any person who is a party to, or concerned in, the arrangement or scheme;

and this subsection applies whether any such person obtains the gain for himself or for any other person.

(3) Where this section applies, the whole of any such gain shall for all the purposes of the [F5 Corporation Tax Acts] be treated—

(a) as being income which arises when the gain is realised F6 . . . ; and

(b) subject to the following provisions of this section, as being income of the [F7 company by which] the gain is realised.

[F8 (3A) The gain treated as income shall be charged—

(a) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) to corporation tax as profits or gains under Case VI of Schedule D for the accounting period in which the gain is realised.

(3B) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(4) For the purposes of this section—

(a) land is disposed of if, by any one or more transactions, or by any arrangement or scheme, whether concerning the land or property deriving its value from the land, the property in the land, or control over the land, is effectually disposed of; and

(b) references in subsection (2) above to the acquisition or development of property with the sole or main object of realising the gain from disposing of the land shall be construed accordingly.

(5) For those purposes—

(a) where, whether by a premature sale or otherwise, a person directly or indirectly transmits the opportunity of making a gain to another person, that other person’s gain is obtained for him by the first-mentioned person; and

(b) any number of transactions may be regarded as constituting a single arrangement or scheme if a common purpose can be discerned in them, or if there is other sufficient evidence of a common purpose.

(6) For the purposes of this section, such method of computing a gain shall be adopted as is just and reasonable in the circumstances, taking into account the value of what is obtained for disposing of the land, and allowing only such expenses as are attributable to the land disposed of; and in applying this subsection—

(a) where a freehold is acquired and the reversion is retained on disposal, account may be taken of the way in which the [F11 profits] under F12 . . . Case I of Schedule D of a [F13 company] dealing in land are computed in such a case; or

(b) account may be taken of the adjustments to be made in computing such [F11 profits] under [F14 F15 . . . subsections (2) and (3) of section 99 above].

• In the application of this subsection to Scotland, “freehold” means the [F16 interest] of the owner, and “reversion” means the interest of the landlord in property subject to a lease.

(7) Subsection (2)(c) above shall not apply to so much of any gain as is fairly attributable to the period, if any, before the intention to develop the land was formed, and which would not fall under paragraph (a) or (b) of that subsection; and in applying this subsection account shall be taken of the treatment under F17 . . . Case I of Schedule D of a [F18 company which] appropriates land as trading stock.

(8) If all or any part of the gain accruing to any person is derived from value, or an opportunity of realising a gain, provided directly or indirectly by [F19 another person which is a company], whether or not put at the disposal of the first-mentioned person, subsection (3)(b) above shall apply to the gain, or that part of it, with the substitution of [F20 that company] for the person by whom the gain was realised.

(9) F21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) Where—

(a) there is a disposal of shares in—

(i) a company which holds land as trading stock; or

(ii) a company which owns directly or indirectly 90 per cent. or more of the ordinary share capital of another company which holds land as trading stock; and

(b) all the land so held is disposed of—

(i) in the normal course of its trade by the company which held it, and

(ii) so as to procure that all opportunity of profit in respect of the land arises to that company,

then this section shall not by virtue of subsection (2)(i) above apply to any gain to the holder of shares as being a gain on property deriving value from that land (but without prejudice to any liability under subsection (2)(ii) above).

(11) Where a [F22 company][F23 which] considers that paragraph (a) or (c) of subsection (2) above may apply as respects a gain of a capital nature which that [F22 company] has obtained from the disposal of land, or which [F24 it] would obtain from a proposed disposal of land, supplies to the inspector to whom [F24 it] makes [F25 its] return of income written particulars showing how the gain has arisen or would arise—

(a) the inspector shall, within 30 days from his receipt of the particulars, notify that [F22 company] whether or not he is satisfied that, in the circumstances as described in the particulars, the gain will not, or would not, be chargeable to tax on that [F22 company] under this section; and

(b) if the inspector notifies that [F22 company] that he is so satisfied, the gain shall not be chargeable on that [F22 company] under this section.

(12) If the particulars given under this section with respect to the gain are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the inspector, any notification given by the inspector under subsection (11) above shall be void.

(13) In this section—

(a) references to the land include references to all or any part of the land, and “land” includes buildings, and any estate or interest in land or buildings;

(b) references to property deriving its value from land include—

(i) any shareholding in a company, or any partnership interest, or any interest in settled property, deriving its value directly or indirectly from land, and

(ii) any option, consent or embargo affecting the disposition of land;

and for the purposes of this section any question whether a person is connected with another shall be determined in accordance with section 839.

(14) This section shall apply to all persons, whether resident in the United Kingdom or not, if all or any part of the land in question is situated in the United Kingdom.

Textual Amendments

F4 Word in s. 776(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(2) (with Sch. 2)

F5 Words in s. 776(3) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(3)(a) (with Sch. 2)

F6 Words in s. 776(3)(a) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 312(2), Sch. 3 (with Sch. 2)

F7 Words in s. 776(3)(b) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(3)(b) (with Sch. 2)

F8 S. 776(3A)(3B) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 312(3) (with Sch. 2)

F9 S. 776(3A)(a) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(4), Sch. 3 Pt. 1 (with Sch. 2)

F10 S. 776(3B) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(5), Sch. 3 Pt. 1 (with Sch. 2)

F11 Words in s. 776(6)(a)(b) substituted (31.7.1998) by Finance Act 1998 (c. 6), s. 46(3)(a), Sch. 7 para. 1

F12 Words in s. 776(6)(a) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(6)(a)(i), Sch. 3 Pt. 1 (with Sch. 2)

F13 Word in s. 776(6)(a) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(6)(a)(ii) (with Sch. 2)

F14 Words in s. 776(6)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 312(4)(b) (with Sch. 2)

F15 Words in s. 776(6)(b) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(6)(b), Sch. 3 Pt. 1 (with Sch. 2)

F16 Word in s. 776(6) substituted (S.) (28.11.2004) by Abolition of Feudal Tenure etc. (Scotland) Act 2000 (asp 5), ss. 71, 77(2), Sch. 12 para. 50(4); S.S.I. 2003/456, art. 2

F17 Words in s. 776(7) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(7)(a), Sch. 3 Pt. 1 (with Sch. 2)

F18 Words in s. 776(7) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(7)(b) (with Sch. 2)

F19 Words in s. 776(8) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(8)(a) (with Sch. 2)

F20 Words in s. 776(8) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(8)(b) (with Sch. 2)

F21 S. 776(9) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(9), Sch. 3 Pt. 1 (with Sch. 2)

F22 Words in s. 776(11) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(10)(a) (with Sch. 2)

F23 Word in s. 776(11) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(10)(b) (with Sch. 2)

F24 Words in s. 776(11) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(10)(c) (with Sch. 2)

F25 Word in s. 776(11) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 184(10)(d) (with Sch. 2)

Marginal Citations

M1 Source—1970 s.488; 1979(C) Sch.7

777 Provisions supplementary to [F26 section 776]. U.K.

M2 (1) This section has effect to supplement [F27 section 776].

(2) In applying [F28 section 776 and this section] account shall be taken of any method, however indirect, by which—

(a) any property or right is transferred or transmitted; or

(b) the value of any property or right is enhanced or diminished;

and accordingly the occasion of the transfer or transmission of any property or right, however indirect, and the occasion when the value of any property or right is enhanced, may be an occasion when, under [F29 section 776], tax becomes chargeable.

(3) Subsection (2) above applies in particular—

(a) to sales, contracts and other transactions made otherwise than for full consideration or for more than full consideration; and

(b) to any method by which any property or right, or the control of any property or right, is transferred or transmitted by assigning share capital or other rights in a company or any partnership or interest in settled property; and

(c) to the creation of any option or consent or embargo affecting the disposition of any property or right, and to the consideration given for the option, or for the giving of the consent or the release of the embargo; and

(d) to the disposal of any property or right on the winding up, dissolution or termination of any company, partnership or trust.

(4) In ascertaining for the purposes of [F30 section 776 and this section] the intentions of any person, the objects and powers of any company, partners or trustees, as set out in any memorandum, articles of association or other document, shall not be conclusive.

(5) In order to ascertain whether and to what extent the value of any property or right is derived from any other property or right, value may be traced through any number of companies, partnerships and trusts, and the property held by any company, partnership or trust shall be attributed to the shareholders, partners or beneficiaries at each stage in such manner as is appropriate in the circumstances.

(6) In applying [F31 section 776 and this section]—

(a) any expenditure or receipt or consideration or other amount may be apportioned by such method as is just and reasonable in the circumstances;

(b) all such valuations shall be made as are appropriate to give effect to [F32 section 776].

(7) For the purposes of [F33 section 776 and this section] partners, or the trustees of settled property, or personal representatives, may be regarded as persons distinct from the individuals or other persons who are for the time being partners or trustees or personal representatives.

(8) Where [F34 a company] is assessed to [F35 corporation tax under section 776] in respect of consideration receivable by another person—

(a) [F36 it] shall be entitled to recover from that other person any part of that tax which [F36 it] has paid; and

(b) if any part of that tax remains unpaid at the expiration of six months from the date when it became due and payable, it shall be recoverable from that other person as though he were [F37 the company] assessed, but without prejudice to the right to recover it from [F37 the company] actually assessed;

and for the purposes of paragraph (a) above the Board or an inspector shall on request furnish a certificate specifying the amount of income in respect of which tax has been paid, and the amount of tax so paid; and the certificate shall be conclusive evidence of any facts stated in it.

F38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) F39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) [F40 Section 776 has] effect subject to [F41 Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor)] and to any other provision of the Tax Acts deeming income to belong to a particular person.

(11) Where under section 776(2)(c) any [F42 company] is charged to tax on the realisation of a gain, and the computation of the gain proceeded on the footing that the land or some other property was appropriated at any time as trading stock, that land or other property shall be treated on that footing also for the purposes of section [F43 161 of the 1992] Act (property becoming or ceasing to be stock in trade).

[F44 (12) Where under section 776(8) the company charged to corporation tax is not the person (“P”) by whom the gain was realised and the tax has been paid, then for the purposes of sections 37 and 39 of the 1992 Act (profits taxable as income excluded from tax on chargeable gains) P shall be regarded as having been charged to that tax.]

(13) For the purposes of [F45 section 776 [F46 of this Act and Chapter 3 of Part 13 of ITA 2007] and this section]—

• [F47 “capital”, in relation to a gain, means that, apart from section 776, the gain does not fall to be included in any calculation of income for [F48 purposes of the Tax Acts];]

• “company” includes any body corporate; and

• “share” includes stock;

F49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F26 Words in s. 777 sidenote substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(13) (with Sch. 2)

F27 Words in s. 777(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(2) (with Sch. 2)

F28 Words in s. 777(2) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(3)(a) (with Sch. 2)

F29 Words in s. 777(2) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(3)(b) (with Sch. 2)

F30 Words in s. 777(4) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(4) (with Sch. 2)

F31 Words in s. 777(6) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(5)(a) (with Sch. 2)

F32 Words in s. 777(6)(b) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(5)(b) (with Sch. 2)

F33 Words in s. 777(7) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(6) (with Sch. 2)

F34 Words in s. 777(8) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(7)(a) (with Sch. 2)

F35 Words in s. 777(8) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(7)(b) (with Sch. 2)

F36 Words in s. 777(8)(a) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(7)(c) (with Sch. 2)

F37 Words in s. 777(8)(b) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(7)(d) (with Sch. 2)

F38 Words in s. 777(8) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(7)(e), Sch. 3 Pt. 1 (with Sch. 2)

F39 S. 777(9) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(8), Sch. 3 Pt. 1 (with Sch. 2)

F40 Words in s. 777(10) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(9) (with Sch. 2)

F41 Words in s. 777(10) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 313(3) (with Sch. 2)

F42 Word in s. 777(11) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(10) (with Sch. 2)

F43 Words in s. 777(11)(12) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(51) (with ss. 60, 101(1), 171, 201(3))

F44 S. 777(12) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(11) (with Sch. 2)

F45 Words in s. 777(13) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(12)(a) (with Sch. 2)

F46 Words in s. 777(13) inserted (retrospective to 6.4.2007 and with effect in accordance with art. 1(2) of the amending S.I.) by The Income Tax Act 2007 (Amendment) (No. 2) Order 2009 (S.I. 2009/2859), arts. 1, 2(3)(a)

F47 S. 777(13): definition of "capital" substituted for definition of "capital amount" (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by virtue of Income Tax Act 2007 (c. 3), Sch. 1 para. 185(12)(b) (with Sch. 2)

F48 S. 777(13): words in definition of "capital" substituted (retrospective to 6.4.2007 and with effect in accordance with art. 1(2) of the amending S.I.) by The Income Tax Act 2007 (Amendment) (No. 2) Order 2009 (S.I. 2009/2859), arts. 1, 2(3)(b)

F49 Words in s. 777(13) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 185(12)(c), Sch. 3 Pt. 1 (with Sch. 2)

Marginal Citations

M2 Source—1970 s.489; 1979(C) Sch.7

778 Power to obtain information. U.K.

M3 (1) The Board or an inspector may by notice require any person to furnish them within such time as the Board or the inspector may direct (not being less than 30 days) with such particulars as the Board or the inspector think necessary for the purposes of [F50 section 776].

(2) The particulars which a person must furnish under this section, if he is required by a notice from the Board or the inspector so to do, include particulars—

(a) as to transactions or arrangements with respect to which he is or was acting on behalf of others;

(b) as to transactions or arrangements which in the opinion of the Board or the inspector should properly be investigated for the purposes of [F51 section 776] notwithstanding that, in the opinion of the person to whom the notice is given, no liability to tax arises under [F52 that section]; and

(c) as to whether the person to whom the notice is given has taken or is taking any, and if so what, part in any, and if so what, transactions or arrangements of a description specified in the notice.

(3) Notwithstanding anything in subsection (2) above, a solicitor—

(a) shall not be deemed for the purposes of paragraph (c) of that subsection to have taken part in any transaction or arrangement by reason only that he has given professional advice to a client in connection with the transaction or arrangement, and

(b) shall not, in relation to anything done by him on behalf of a client, be compellable under this section, except with the consent of his client, to do more than state that he is or was acting on behalf of a client, and give the name and address of his client.

Textual Amendments

F50 Words in s. 778(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 186(a) (with Sch. 2)

F51 Words in s. 778(2)(b) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 186(b)(i) (with Sch. 2)

F52 Words in s. 778(2)(b) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 186(b)(ii) (with Sch. 2)

Modifications etc. (not altering text)

C1 See S.I.1989 No.1343 (N.I.14) Sch.1 para.38(3)for construction in the case of a solicitor who is an officer or employee of a recognised body.

Marginal Citations

M3 Source—1970 s.490

779 Sale and leaseback: limitation on tax reliefs. U.K.

M4 (1) If land or any estate or interest in land is transferred from one person to another and—

(a) as a result of a lease of the land or any part of the land granted at that time or subsequently by the transferee to the transferor, or

(b) as a result of any other transaction or series of transactions affecting the land or any estate or interest in the land,

the transferor, or any person who is associated with the transferor, becomes liable at the time of the transfer or subsequently to pay any rent under a lease of the land or any part of the land, this section shall apply to all rent due under the lease from the transferor, or from any person who is associated with the transferor.

(2) If—

(a) land or any estate or interest in land is transferred from one person to another, and

(b) as a result of any transaction or series of transactions affecting the land or any estate or interest in the land, the transferor, or any person who is associated with the transferor, becomes liable at the time of the transfer or subsequently to make any payment (other than rent under a lease) for which any relevant tax relief is available, being a payment by way of rentcharge on the land or any part of the land or a payment in any other way connected with the land,

then this section shall apply to all such payments under the rentcharge or other transaction due from the transferor, or from any person who is associated with the transferor.

(3) The references in subsections (1) and (2) above to the transfer of an estate or interest in land include references to—

(a) the granting of a lease or any other transaction involving the creation of a new estate or interest in the land;

(b) the transfer of the lessee’s interest under a lease by surrender or forfeiture of the lease; and

(c) any transaction or series of transactions affecting land or an estate or interest in land, such that some person is the owner, or one of the owners, before and after the carrying out of the transaction or transactions, but another person becomes or ceases to become one of the owners;

and in relation to any such transaction or series of transactions any person who is an owner before the carrying out of the transaction or transactions, and is not the sole owner thereafter, shall be regarded for the purposes of this section as a transferor.

(4) A deduction by way of any relevant tax relief, being a deduction in respect of rent or of any other payment to which this section applies, shall not exceed the commercial rent for the period for which the rent or other payment is made of the land in respect of which that payment is made.

(5) If—

(a) under subsection (4) above part of a payment which would otherwise be allowable as a deduction by way of any relevant tax relief is not so allowable, and

(b) one or more subsequent payments are made by the transferor, or a person who is associated with the transferor, under the lease or other transaction,

that part of the first-mentioned payment may be carried forward and treated for the purposes of any such deduction by way of tax relief as if it were made at the time when the next of those subsequent payments was made, and so made for the period for which that subsequent payment was made.

(6) For the purposes of subsection (4) above—

(a) if more than one payment is made for the same period the payments shall be taken together;

(b) if payments are made for periods which overlap, the payments shall be apportioned, and the apportioned payments which belong to the common part of the overlapping periods shall be taken together;

(c) the preceding references to payments include references to parts of payments which under subsection (5) above are treated as if made at a time subsequent to that at which they were made, and to the extent that a part of a payment so carried forward under that subsection is not so allowable as a deduction by way of tax relief, it may again be carried forward under that subsection;

(d) so much of any payment as is in respect of services or the use of assets or rates usually borne by the tenant shall be excluded, and in determining the amount to be so excluded provisions in any lease or agreement fixing the payments or parts of payments which are in respect of services or the use of assets may be overridden.

(7) A payment made for a period all of which falls more than one year after the payment is made shall be treated for the purposes of this section as made for that period of one year beginning with the date on which the payment was made, and a payment for a period part of which falls after the end of that year shall be treated for those purposes as if a corresponding part of the payment was made for that year (and no part for any later period).

(8) For the purposes of making a comparison under subsection (4) above between a payment consisting of rent under a lease (“the actual lease”), or such payments taken together, and the commercial rent of the land, “commercial rent” shall mean the rent which might be expected to be paid under a lease of the land negotiated in the open market at the time when the actual lease was created, being a lease which is of the same duration as the actual lease, which is, as respects liability for maintenance and repairs, subject to the terms and conditions of the actual lease and which provides for rent payable at uniform intervals and—

(a) at a uniform rate, or

(b) if the rent payable under the actual lease is rent at a progressive rate (and such that the amount of rent payable for any year is never less than the amount payable for any previous year), a rent which progresses by gradations proportionate to those provided by the actual lease.

(9) For the purpose of making a comparison under subsection (4) above between a payment which does not consist of rent under a lease (or such a payment taken together with other payments) and the commercial rent of the land, “commercial rent” shall mean the rent which might be expected to be paid under a tenant’s repairing lease negotiated in the open market at the time when the transaction was effected under which the payment or payments became due, being—

(a) where the period over which payments are to be made under that transaction is not less than 200 years, or the obligation to make such payments is perpetual, a lease for 200 years; and

(b) where that period is less than 200 years, a lease which is of the same duration as that period.

(10) In this section references to rent under a lease include references to

[F53 (a)] rent which the person entitled to the lease is under subsection (4), (5) or (6) of section 37 [F54 or under section 37A] or under section 87 [F55 or 87A] treated, for any purpose, as paying in respect of land comprised in the lease, [F56 and

(b) expenses which the tenant under the lease is treated as incurring in respect of the land subject to the lease under sections 61 to 67 or 292 to 297 of ITTOIA 2005,]

and such rent shall be treated for the purposes of this section as having been paid from day to day as it has become due [F57 and such expenses shall be treated for those purposes as having been paid as soon as they have been incurred.]

(11) For the purposes of this section the following persons shall be deemed to be associated with one another, that is—

(a) the transferor in any such transaction as is described in subsection (1) or (2) above, and the transferor in another such transaction, if those two persons are acting in concert, or if the two transactions are in any way reciprocal, and any person who is an associate of either of those associated transferors;

(b) any two or more bodies corporate participating in, or incorporated for the purposes of, a scheme for the reconstruction of any body or bodies corporate or for the amalgamation of any two or more bodies corporate;

(c) any persons who are associates as defined in section 783(10).

(12) In this section—

• “asset” means any description of property or rights other than land or an interest in land;

• “lease” includes an underlease, sublease or any tenancy or licence, and any agreement for a lease, underlease, sublease or tenancy or licence and, in the case of land outside the United Kingdom, any interest corresponding to a lease as so defined; and in relation to such land, expressions in this section relating to interests in land and their disposition shall be construed accordingly;

• “rent” includes any payment made under a lease; and

• “tenant’s repairing lease” means a lease where the lessee is under an obligation to maintain and repair the whole, or substantially the whole, of the premises comprised in the lease.

(13) For the purposes of this section the following are deductions by way of relevant tax relief, that is to say—

(a) a deduction in computing profits or gains chargeable under Schedule A F58 . . . ;

[F59 (aa) a deduction in calculating the profits of a UK property business;]

(b) a deduction in computing [F60 profits] or losses of a trade, profession or vocation for the purposes of tax;

(c) a deduction in computing profits or gains chargeable under Case VI of Schedule D, or in computing any loss for which relief is allowable under section F61 . . . 396;

[F62 (ca) a deduction in computing profits or other income or gains chargeable to income tax under or by virtue of any provision to which [F63 section 1016 of ITA 2007] applies, or in computing any loss for which relief is allowable under [F64 section 152 of ITA 2007];]

(d) [F65 a deduction] under section 75 or 76;

(e) [F66 a deduction from earnings allowed under section 336 of ITEPA 2003 (expenses)] or allowable in computing losses in an employment for tax purposes;

(f) a deduction allowable for tax purposes in computing profits or gains or losses arising from woodlands.

(14) This section shall not apply if the transfer described in subsection (1) or (2) above was on or before 14th April 1964.

Textual Amendments

F53 Words in s. 779(10) renumbered as s. 779(10)(a) (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by virtue of Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(2)(a) (with Sch. 2)

F54 Words in s. 779(10)(a) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(2)(b) (with Sch. 2)

F55 Words in s. 779(10)(a) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(2)(c) (with Sch. 2)

F56 S. 779(10)(b) and preceding word inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(2)(d) (with Sch. 2)

F57 Words in s. 779(10) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(2)(e) (with Sch. 2)

F58 Words in s. 779(13)(a) repealed (with effect in accordance with s. 39(4)(5) of the repealing Act) by Finance Act 1995 (c. 4), Sch. 6 para. 27, Sch. 29 Pt. 8(1), Note

F59 S. 779(13)(aa) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(3)(a) (with Sch. 2)

F60 Words in s. 779(13)(b) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F61 Words in s. 779(13)(c) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(3)(b), Sch. 3 (with Sch. 2)

F62 S. 779(13)(ca) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 314(3)(c) (with Sch. 2)

F63 Words in s. 779(13)(ca) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 187(a) (with Sch. 2)

F64 Words in s. 779(13)(ca) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 187(b) (with Sch. 2)

F65 Words in s. 779(13)(d) substituted (28.9.2004 with effect in accordance with art. 1(2) of the amending S.I.) by The Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendment of Enactments) Order 2004 (S.I. 2004/2310), art. 2, Sch. para. 32(2)

F66 Words in s. 779(13)(e) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 101 (with Sch. 7)

Modifications etc. (not altering text)

C2 S. 779 restricted (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 23

C3 S. 779 excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1)(f), Sch. 7 para. 22 (with s. 43(6))

C4 S. 779 excluded (12.1.2000) by Greater London Authority Act 1999 (c. 29), s. 425(2), Sch. 33 para. 13(1); S.I. 1999/3434, art. 2

C5 S. 779(1)(2) excluded (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 24(8) (with s. 40(7)); S.I. 1994/2189, art. 2, Sch.

C6 S. 779(1)(2) excluded (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 10

Marginal Citations

M4 Source—1970 s.491

780 Sale and leaseback: taxation of consideration received. U.K.

M5 (1) If, in any case where a person (“the lessee”) who is a lessee of land under a lease having not more than 50 years to run (“the original lease”) is entitled in respect of the rent under the lease to a deduction by way of tax relief which is a relevant tax relief for the purposes of section 779—

(a) the lessee assigns the original lease to another person, or surrenders it to his landlord, for a consideration which apart from this section would not be taxable otherwise than as capital in the hands of the lessee, and

(b) there is granted or assigned to the lessee another lease (“the new lease”) of or including the whole or any part of the land which was the subject of the original lease for a term not exceeding 15 years;

then, subject to the following provisions of this section, the provisions of this Act providing for deductions or allowances by way of tax relief in respect of payments of rent shall apply in relation to the rent under the new lease, and for the purposes of the Tax Acts a proportion of the consideration received by the lessee shall be treated not as a capital receipt but in accordance with subsection (3) below.

(2) For the purposes of this section—

(a) if the aggregate of the rent payable under the new lease in respect of any rental period ending on a date falling before the 15th anniversary of the date on which the term of the new lease begins is greater than the aggregate of the rent payable under the new lease in respect of the period of equal duration beginning on the day following that date, then unless the term of the new lease would be treated as ending on an earlier date by virtue of paragraph (b) below, that term shall be treated as ending on that date;

(b) if under the terms of the new lease—

(i) the lessor of the lessee has power to determine the new lease at a time before the expiry of the term for which it was granted, or

(ii) the lessee has power to vary his obligations under the new lease so as to reduce the rent which he would otherwise have to pay or in any other manner beneficial to him,

then, unless the term of the new lease would be treated as ending on an earlier date by virtue of paragraph (a) above, that term shall be treated as ending on the earliest date with effect from which, in exercise of that power, the lessor or the lessee could determine the new lease or, as the case may be, the lessee could so vary his obligations;

and in any case where a rentcharge payable by the lessee is secured on the whole or any part of the property which is the subject of the new lease, the rent payable under the new lease shall be treated for the purposes of paragraphs (a) and (b) above as equal to the aggregate of the rentcharge and the rent payable under the terms of that lease.

(3) Subject to the following provisions of this section, the proportion of the consideration received by the lessee as mentioned in subsection (1) above, or of any instalment of that consideration, which for the purposes of the Tax Acts is to be treated not as a capital receipt but in accordance with this subsection shall be determined by the formula—

where N is the term of the new lease expressed in years or, if that term is less than a year, where N is 1; and that proportion shall be treated for the purposes of the Tax Acts—

(a) as a receipt of a trade, profession or vocation, if the rent payable by the lessee under the new lease is allowable as a deduction in computing [F67 profits] or losses of a trade, profession or vocation for the purposes of tax and if the consideration is received by the lessee in the course of that trade, profession or vocation; and

(b) in any other case, as [F68 an amount chargeable to tax in accordance with subsection (3A)].

[F69 (3A) The amount shall be charged—

(a) to income tax, or

(b) to corporation tax as a profit or gain under Case VI of Schedule D.

(3B) The income tax charged by virtue of subsection (3A)(a) above shall be charged on the full amount of the proportion of the consideration concerned arising in the year of assessment; and the person liable for any tax so charged is the lessee.]

[F70 (3C) An amount charged to income tax by virtue of subsection (3A)(a) above is treated for income tax purposes as an amount of income.]

(4) In any case where the property which is the subject of the new lease does not include the whole of the property which was the subject of the original lease, the consideration received by the lessee shall be treated for the purposes of subsection (3) above as reduced to that portion of the consideration which is reasonably attributable to such part of the property which was the subject of the original lease as consists of, or is included in, the property which is the subject of the new lease.

(5) Schedule 2shall have effect for the purposes of giving relief, on a claim being made in that behalf, from any increase in an individual’s liability to income tax which is attributable to any amount being treated, by virtue of subsection (3)above, as an income receipt for a single year of assessment rather than as a series of such receipts during the term of the new lease; and in the application of that Schedule by virtue of this subsection for the definitions of “chargeable sum” and “relevant period” there shall be substituted the following definitions—

• “ “chargeable sum” means the amount in respect of which, by virtue of subsection (3)above, the claimant is chargeable to income tax for the year of assessment;”

“ “relevant period”, in relation to any chargeable sum, means the term of the new lease.”

(6) Where by agreement with his landlord, the lessee varies the terms of the original lease in such a manner that, in return for such a consideration as is specified in subsection (1)(a) above, the lessee undertakes to pay, during a period ending not later than 15 years after the date on which the consideration, or if the consideration is paid in instalments, the last such instalment, is paid to the lessee, a rent greater than that payable under the original lease, he shall be treated for the purposes of this section—

(a) as having surrendered the original lease for that consideration, and

(b) as having been granted a new lease for a term not exceeding 15 years but otherwise on the terms of the original lease as so varied.

(7) References in this section to the lessee (other than in subsection (1)(a) above) include references to a person who is a partner or associate of the lessee or an associate of a partner of the lessee; and for the purposes of this section the expression “associate” shall be construed in accordance with 783(10).

(8) Subject to subsection (7) above, expressions used in this section have the meanings assigned to them by section 24, and in subsection (2)(a) above “rental period” means a period in respect of which a payment of rent falls to be made, and for the purposes of that subsection, in a case where the rental period is a quarter or a month, each such period shall be treated as of equal duration.

(9) The preceding provisions of this section shall not apply if the lessee had, before 22nd June 1971, a right enforceable at law or in equity to the grant of the new lease, but in any case where, apart from this subsection, those provisions would apply, no part of the rent paid under the new lease shall be treated as a payment of capital, and the provisions of this Act providing for deductions or allowances by way of tax relief in respect of payments of rent shall apply accordingly.

Textual Amendments

F67 Words in s. 780(3)(a) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F68 Words in s. 780(3)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 315(2) (with Sch. 2)

F69 S. 780(3A)(3B) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 315(3) (with Sch. 2)

F70 S. 780(3C) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 188 (with Sch. 2)

Modifications etc. (not altering text)

C7 S. 780 excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1)(f), Sch. 7 para. 23 (with s. 43)

Marginal Citations

M5 Source—1972 s.80

781 Assets leased to traders and others. U.K.

M6 (1) Subject to section 782, where—

(a) a deduction by way of tax relief which is one of the kinds listed in subsection (4) below is allowable in respect of a payment made under a lease of an asset of any description, and

(b) before, at or after the time when the payment is made, either—

(i) the person who made the payment has obtained or obtains a capital sum in respect of the lessee’s interest in the lease, or

(ii) the lessor’s interest in the lease, or any other interest in the asset, has belonged to an associate of the person who made the payment, and that associate has obtained a capital sum in respect of that interest,

the person obtaining that sum shall be charged [F71 to tax (in the case of corporation tax, under Case VI of Schedule D) for the chargeable period in which the sum is obtained] on an amount equal to the amount of the payment in respect of which tax relief is so allowed.

[F72 (1A) An amount charged to income tax under subsection (1) above is treated for income tax purposes as an amount of income.]

(2) A person shall not be assessed to tax under subsection (1) above on any amount to the extent to which it exceeds the capital sum by reference to which he is so assessed.

(3) Subsection (1) above shall not apply to payments under a lease created on or before 14th April 1964.

(4) The kinds of deductions by way of tax relief to which subsection (1) above applies are as follows—

(a) a deduction in computing [F73 profits] or losses of a trade, profession or vocation for the purposes of tax;

[F74 (ab) a deduction in computing profits or other income or gains chargeable to income tax under or by virtue of any provision to which [F75 section 1016 of ITA 2007] applies, or in computing any loss for which relief is allowable under [F76 section 152 of ITA 2007];]

(b) a deduction in computing profits or gains chargeable under Case VI of Schedule D, or in computing any loss for which relief is allowable under section F77 . . . 396;

(c) [F78 a deduction] under section 75 or 76;

(d) [F79 a deduction from earnings allowed under section 336 of ITEPA 2003 (expenses)] or allowable in computing losses in an employment for tax purposes;

(e) a deduction allowable for tax purposes in computing profits or gains or losses arising from woodlands.

(5) Where—

(a) the deduction by way of tax relief mentioned in subsection (1)(a) above is a deduction in computing, for income tax purposes, profits or gains or losses of a trade, profession or vocation, or arising from woodlands, and

(b) any part of the payments made under the lease by the person obtaining the capital sum is a payment in respect of which a deduction is not allowed for the reason that the whole or any part of the period in which the payment would fall to be allowed is not a period on the [F73 profits] of which income tax falls to be computed in respect of the trade, profession or vocation,

for the reference in subsection (2) above to the amount of the capital sum there shall be substituted a reference to that amount after deducting the amount of the payment in respect of which a deduction is not allowed for that reason.

(6) So far as in respect of a capital sum any part of a payment allowed as a deduction by way of tax relief of a kind to which this section applies is taken into account in making an assessment under subsection (1) above, that part of the payment shall be left out of account in determining whether any and if so what amount should be assessed by reference to any other capital sum; and the order in which this subsection is applied shall be the order in which the capital sums are obtained.

(7) There shall be made all such adjustments of tax, whether by way of making assessments or by repayment of tax, as are required after the making of any such payment as is described in subsection (1) above to give effect to the charge under that subsection in respect of a sum obtained before the making of the payment.

(8) Notwithstanding anything in the Tax Acts limiting the time within which an assessment may be made or a claim for relief may be admitted any such adjustment may be made, by making an assessment or otherwise, at any time [F80 within the period specified in subsection (8A) below].

[F81 (8A) The period mentioned in subsection (8) above is—

(a) in the case of adjustments with respect to income tax, the period ending with the fifth anniversary of the 31st January next following the year of assessment in which the payment was made;

(b) in the case of adjustments with respect to corporation tax, the period of six years beginning at the end of the accounting period in which the payment was made.]

(9) This section shall not apply if the capital sum obtained in respect of the lessee’s interest in a lease constituting a hire-purchase agreement for machinery or plant is a sum which is required to be brought into account as the whole or part of the disposal value of the machinery or plant under [F82 section 68 of the Capital Allowances Act].

Textual Amendments

F71 Words in s. 781(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 316(2) (with Sch. 2)

F72 S. 781(1A) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 189(2) (with Sch. 2)

F73 Words in s. 781(4)(a)(5)(b) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F74 S. 781(4)(ab) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 316(3) (with Sch. 2)

F75 Words in s. 781(4)(ab) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 189(3)(a) (with Sch. 2)

F76 Words in s. 781(4)(ab) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 189(3)(b) (with Sch. 2)

F77 Words in s. 781(4)(b) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 316(4), Sch. 3 (with Sch. 2)

F78 Words in s. 781(4)(c) substituted (28.9.2004 with effect in accordance with art. 1(2) of the amending S.I.) by The Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendment of Enactments) Order 2004 (S.I. 2004/2310), art. 2, Sch. para. 33(2)

F79 Words in s. 781(4)(d) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 102 (with Sch. 7)

F80 Words in s. 781(8) substituted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 21 para. 21(2)

F81 S. 781(8A) inserted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 21 para. 21(3)

F82 Words in s. 781(9) substituted (with effect in accordance with s. 579 of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 57

Modifications etc. (not altering text)

C8 S. 781 modified (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 19(1)-(4)

C9 S. 781 excluded (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 19(6)

C10 S. 781 modified (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 18(1) (with s. 40(7)); S.I. 1994/2189, art. 2, Sch.

C11 S. 781 modified (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 11(1)

C12 S. 781 modified (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1)(f), Sch. 7 para. 24(1) (with s. 43)

C13 S. 781 excluded (12.1.2000) by Greater London Authority Act 1999 (c. 29), s. 425(2), Sch. 33 para. 13(2); S.I. 1999/3434, art. 2

C14 S. 781 modified (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 paras. 8, 20; S.I. 2005/1444, art. 2(1), Sch. 1

C15 S. 781 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 paras. 16, 25

C16 See 1979(C) s.106and Sch.3 para.9—amounts charged under s.781to be excluded in computing capital gains.

Marginal Citations

M6 Source—1970 s.492 (1)-(5), (7)-(9); 1971 Sch.8 16(7)

782 Leased assets: special cases. U.K.

M7 (1) This section shall apply, and section 781 shall not apply, to payments—

(a) which are allowable by way of deductions in computing the [F83 profits] or losses of a trade, and

(b) which are made under a lease of an asset which at any time before the creation of the lease was used for the purposes—

(i) of that trade; or

(ii) of another trade carried on by the person who at that time or later was carrying on the first-mentioned trade;

and when so used was owned by the person carrying on the trade in which it was being used.

[F84 (1A) This section does not apply to a payment if or to the extent that, in the case of the lessee, it falls to be regarded in accordance with Chapter 6A of Part 2 of the Capital Allowances Act as a payment under a lease which is a long funding finance lease for the purposes of that Part.]

(2) Subject to the following provisions of this section, the deduction allowable in computing the [F83 profits] or losses of the trade for the purposes of tax as respects any such payment shall not exceed the commercial rent of the asset for the period for which the payment was made.

(3) If under subsection (2) above part of a payment which would otherwise be allowable as a deduction is not so allowable, and one or more subsequent payments are made by the same person under the same lease, that part of the first-mentioned payment may be carried forward and treated for the purposes of computing the [F83 profits] or losses of the trade for the purposes of tax as if it were made at the time when the next of those subsequent payments was made, and so made for the period for which that subsequent payment was made.

(4) For the purposes of subsection (2) above—

(a) if more than one payment is made for the same period the payments shall be taken together;

(b) if the payments are made for periods which overlap, the payments shall be apportioned, and the apportioned payments which belong to the common part of the overlapping periods shall be taken together;

(c) the preceding references to payments include references to parts of payments which under subsection (3) above are treated as if made at a time subsequent to that at which they were made;

and to the extent that a part of a payment carried forward under subsection (3) above is not allowable as a deduction it may again be carried forward under that subsection.

(5) A payment made for a period all of which falls more than one year after the payment is made shall be treated for the purposes of this section as made for that period of one year beginning with the date on which the payment is made, and a payment for a period part of which falls after the end of that year shall be treated for those purposes as if a corresponding part of the payment was made for that year (and no part for any later period).

(6) For the purpose of making a comparison under subsection (2) above between a payment, or payments taken together, and the commercial rent of the asset, “commercial rent” shall mean the rent which might at the relevant time be expected to be paid under a lease of the asset for the remainder of the anticipated normal working life of the asset, being a rent payable at uniform intervals and at a uniform rate which would afford a reasonable return for its market value at the relevant time, having regard to the terms and conditions of the lease; and in this subsection—

• “anticipated normal working life” means, in the case of any asset, the period which might be expected, when the asset is first put into use, to be going to elapse before it is finally put out of use as being unfit for further use, it being assumed that the asset is going to be used in the normal manner and to the normal extent, and is going to be so used throughout that period; and

• “the relevant time” means the time when the lease was created under which the payment was made with which the commercial rent is to be compared.

(7) If the asset is used at the same time partly for the purposes of the trade and partly for other purposes the commercial rent as defined in subsection (6) above shall be determined by reference to what would be paid for such a partial use of the asset.

(8) This section shall not apply in relation to payments made under a lease created on or before 14th April 1964.

(9) In this section references to the person carrying on a trade are references to the person carrying on the trade for the time being, and where at any time a person succeeds to a trade which until that time was carried on by another person, and by virtue of [F85 section 18 of ITTOIA 2005 or section 337(1) above (companies beginning or ceasing to carry on trade)] the trade is to be treated as discontinued, the trade shall, nonetheless, be treated as the same trade for the purposes of this section.

(10) In this section references to a trade include references to a profession or vocation.

Textual Amendments

F83 Words in s. 782(1)(a)(2)(3) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F84 S. 782(1A) inserted (with effect in accordance with Sch. 9 para. 3(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 9 para. 3(2)

F85 Words in s. 782(9) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 317 (with Sch. 2)

Modifications etc. (not altering text)

C17 S. 782 excluded (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 19(5)

C18 S. 782 excluded (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 18(2) (with s. 40(7)); S.I. 1994/2189, art. 2, Sch.

C19 S. 782 excluded (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 11(2)

C20 S. 782 excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1)(f), Sch. 7 para. 24(2) (with s. 43)

C21 S. 782 excluded (12.1.2000) by Greater London Authority Act 1999 (c. 29), s. 425(2), Sch. 33 para. 13(1); S.I. 1999/3434, art. 2

Marginal Citations

M7 Source—1970 s.493; 1971 Sch.8 16(8)

783 Leased assets: supplemental. U.K.

M8 (1) References in section 781 to a sum obtained in respect of the lessee’s interest in a lease of an asset, or in respect of any other interest in an asset include—

(a) in the case of a lessee’s interest, references to sums representing the consideration in money or money’s worth obtained on a surrender of the rights to the lessor, or on an assignment of the lease, or on creating a sublease or any other interest out of the lease; and

(b) references to any insurance moneys payable in respect of the asset, so far as payable to the owner of the interest in the asset.

(2) Such references also include references to sums representing money or money’s worth obtained by the person entitled to the interest by a transaction or series of transactions disposing of the asset, or of an interest in the asset, and in particular transactions which comprise arrangements under which the rights of the lessee under a lease of the asset are merged in any way with the rights of the lessor, or with any other rights as respects the asset, so far as the money or money’s worth so obtained is attributable to the rights of the lessee under the lease.

(3) References in section 781 to sums obtained in respect of any interest in an asset include references to money or money’s worth so obtained in any transaction (including a transaction of the kind described in subsection (1) or (2) above) by way of consideration received by a person who is an associate of the person entitled to the interest in the asset.

(4) If an interest in the asset is disposed of by any person to a person who is his associate, the person disposing of the interest shall (unless in fact he obtains a greater sum) be treated for the purposes of section 781 as having obtained in respect of the interest—

(a) the value of the interest in the open market; or

(b) the value of the interest to the person to whom it is, in effect, transferred;

whichever is the greater.

(5) For the purposes of subsections (3) and (4) above a disposition may be direct or indirect and may be effected by any such transaction as is described in subsection (2) above.

(6) For the purposes of sections 781 and 784 and this section any sum obtained by any persons carrying on a trade, profession or vocation in partnership in respect of an interest in an asset which is and continues to be used for the purposes of the trade, profession or vocation shall be regarded as apportionable between them in the shares in which they are then entitled to the profits of the trade, profession or vocation.

(7) Subject to subsection (6) above, for those purposes a sum obtained by persons jointly entitled to an interest in an asset shall be apportionable according to their respective interests in the rights.

(8) For those purposes, any payment in respect of which a deduction is allowable by way of tax relief which is made by persons carrying on a trade, profession or vocation in partnership shall be apportioned in such manner as may be just.

(9) Where under this section any sum or payment falls to be apportioned and, at the time of the apportionment, it appears that it is material as respects the liability to tax (for whatever period) of two or more persons, any question which arises as to the manner in which the sum or payment is to be apportioned shall be determined, for the purposes of tax of all those persons—

(a) in a case where the same body of General Commissioners have jurisdiction with respect to all those persons, by those Commissioners unless all those persons agree that it shall be determined by the Special Commissioners;

(b) in a case where different bodies of Commissioners have jurisdiction with respect to those persons, by such of those bodies as the Board may direct unless all those persons agree that it shall be determined by the Special Commissioners; and

(c) in any other case, by the Special Commissioners;

and any such Commissioners shall determine the question in like manner as if it were an appeal, except that all those persons shall be entitled to appear and be heard by the Commissioners who are to make the determination or to make representations to them in writing.

(10) For the purposes of this section and in construing the expressions “associate” and “associated” in section 781 and this section, the following persons shall be deemed to be associated with each other, that is to say—

(a) any individual and that individual’s [F86 spouse or civil partner], and any relative, or [F86 spouse or civil partner] of a relative, of that individual or that individual’s [F86 spouse or civil partner] (“relative” meaning, for this purpose, brother, sister, ancestor or lineal descendant);

(b) any person in his capacity of trustee of a settlement and any individual who in relation to the settlement is a settlor, and any person associated with that individual (“settlement” and “settlor” having, for this purpose, the meanings given by [F87 section 620 of ITTOIA 2005]);

(c) any person and a body of persons of which that person, or persons associated with him, or that person and persons associated with him, has or have control;

(d) any two or more bodies of persons associated with the same person by virtue of paragraph (c) above;

(e) in relation to a disposal by joint owners, the joint owners and any person associated with any of them.

(11) In subsection (10) above “body of persons” includes a partnership and “control” has the meaning given by section 840.

Textual Amendments

F86 Words in s. 783(10)(a) substituted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 98

F87 Words in s. 783(10)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 318 (with Sch. 2)

Modifications etc. (not altering text)

C22 S. 783(2) restricted (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 19(2)

C23 S. 783(4) excluded (11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 19(1)(a)(3)

C24 S. 783(4) excluded (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 paras. 8(2), 20(2); S.I. 2005/1444, art. 2(1), Sch. 1

C25 S. 783(4) excluded (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 paras. 16(2), 25(2)

C26 See—s.756—s.783(11)applied for purposes of Part XVII Ch.IV (controlled foreign companies),s.798(10)—s.783(11)applied for purposes of s.798 (interest on certain overseas loans).

Marginal Citations

M8 Source—1970 s.494

784 Leased assets subject to hire-purchase agreements. U.K.

(1) M9 In the application of section 781 to a lease which constitutes a hire-purchase agreement, for the reference in subsection (2) of that section to the amount of the capital sum there shall, where that capital sum was obtained in respect of the lessee’s interest in the lease constituting the hire-purchase agreement, be substituted references to the amount of the capital sum (adjusted, if necessary, under subsection (5) of that section) after deducting any capital expenditure which was incurred by the person obtaining the capital sum in providing the lessee’s interest.

(2) In subsection (1) above “capital expenditure which was incurred by the person obtaining the capital sum in providing the lessee’s interest” means—

(a) so much of any payment made under the lease by the person obtaining the capital sum (or, where the capital sum was obtained by the personal representatives of a deceased person, so made by that deceased person) as is not a payment in respect of which a deduction is allowable by way of tax relief which is one of the kinds listed in subsection (4) of section 781, plus

(b) where the lessee’s interest was assigned to the person obtaining the capital sum, any capital payment made by that person as consideration for the assignment.

(3) If the amount to be deducted in pursuance of subsection (1) above exceeds the amount of the capital sum from which it is to be deducted, no charge shall arise under section 781(1) in respect of the capital sum.

(4) If the capital sum represents the consideration for part only of the lessee’s interest in the lease which constitutes a hire-purchase agreement, the amount to be deducted under subsection (1) above shall be such proportion of the capital expenditure which is still unallowed as is reasonable having regard to the degree to which the capital expenditure has contributed to the value of what is disposed of in return for the capital sum.

(5) If more than one capital sum is, or is to be regarded as, obtained by the same person in respect of the lessee’s interest in the lease which constitutes a hire-purchase agreement, then, so far as in respect of one of those capital sums any deduction is made in respect of capital expenditure in pursuance of subsection (1) above that capital expenditure shall be left out of account in applying subsections (1) and (3) above to any other such capital sum; and the order in which this subsection is applied shall be the order in which the capital sums are obtained.

(6) M10 In this section—

• “hire-purchase agreement” means an agreement, other than a conditional sale agreement, under which—

(a) goods are bailed or, in Scotland, hired in return for periodical payments by the person to whom they are bailed or hired, and

(b) the property in the goods will pass to that person if the terms of the agreement are complied with and one or more of the following occurs—

(i) the exercise of an option to purchase by that person;

(ii) the doing of any other specified act by any party to the agreement;

(iii) the happening of any other specified event; and

“conditional sale agreement” means an agreement for the sale of goods under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled.

Marginal Citations

M9 Source—1970 s.495

M10 Source—Consumer Credit Act 1974 Sch.4 29

785 Meaning of “asset”, “capital sum” and “lease” for purposes of sections 781 to 784. U.K.

• In sections 781 to 784—

  • “asset” means any description of property or rights other than land or an interest in land;

  • “capital sum” means any sum of money, or any money’s worth, except so far as it or any part of it is to be treated for the purposes of tax as a receipt to be taken into account in computing the [F88 profits] or losses of a trade, profession or vocation, or profits or gains or losses arising from woodlands, or is, apart from section 781, chargeable [F89 to income tax under or by virtue of any provision to which [F90 section 1016 of ITA 2007] applies or to corporation tax] under Case VI of Schedule D; and

  • “lease”, in relation to an asset, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, an asset, and includes, in particular, any agreement or arrangement all or any of the payments under which represent instalments of, or payments towards, a purchase price.

Textual Amendments

F88 Words in s. 785 substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F89 S. 785: words in definition of "capital sum" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 319 (with Sch. 2)

F90 S. 785: words in definition of "capital sum" substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 190 (with Sch. 2)

[F91 785ZA Restrictions on use of losses: leasing partnerships U.K.

(1) This section applies for corporation tax purposes if—

(a) a company carries on a business in respect of which the company is within the charge to corporation tax,

(b) the company carries on the business in partnership with other persons in an accounting period of the partnership,

(c) the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

(d) the company incurs a loss in its notional business in any accounting period comprised (wholly or partly) in the accounting period of the partnership, and

(e) the interest of the company in the leasing business during the accounting period of the partnership is not determined on an allowable basis (see subsections (2) to (4)).

(2) The interest of the company in the leasing business during the accounting period of the partnership is determined on an allowable basis if (and only if) the following condition is met.

(3) The condition is met if, for the purposes of section 114(2),—

(a) the company's share in the profits or loss of the leasing business for that period is determined wholly by reference to a single percentage, and

(b) the company's share in any relevant capital allowances for that period is determined wholly by reference to the same percentage.

(4) For the purposes of this condition “profits” does not include chargeable gains.

(5) The following restrictions apply in respect of so much of the loss incurred by the company in its notional business as derives from any relevant capital allowances (“the restricted part of the loss”).

(6) Apart from by way of set off against any relevant leasing income, relief is not to be given to the company under any relevant loss relief provision in respect of the restricted part of the loss.

(7) If the leasing business is a trade, relief is not to be given to the company under section 393A(1) in respect of the restricted part of the loss.

(8) The restricted part of the loss is not available for set off by way of group relief in accordance with section 403.

(9) For the purpose of determining how much of a loss derives from any relevant capital allowances, the loss is to be calculated on the basis that any relevant capital allowances are the final amounts to be deducted.]

Textual Amendments

F91 Ss. 785ZA, 785ZB inserted (with effect in accordance with s. 83(4)-(6) of the amending Act) by Finance Act 2006 (c. 25), s. 83(2)

[F91 785ZB Section 785ZA: definitions U.K.

(1) This section applies for the purposes of section 785ZA.

(2) “Business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to the Finance Act 2006 (sale etc of lessor companies etc).

(3) “Lease” has the same meaning as in section 785A.

(4) “Notional business”, in relation to a company, means the business—

(a) from which the company's share in the profits or loss of the leasing business is treated under section 114(2) as deriving for the purposes of the charge to corporation tax, and

(b) which is treated under that provision as carried on alone by the company for those purposes.

(5) “Plant or machinery” has the same meaning as in Part 2 of the Capital Allowances Act.

(6) “Relevant capital allowance” means an allowance under Part 2 of the Capital Allowances Act in respect of expenditure incurred on the provision of plant or machinery wholly or partly for the purposes of the leasing business.

(7) “Relevant leasing income” means any income of the company's notional business deriving from any lease—

(a) which is a lease of plant or machinery, and

(b) which was entered into before the end of the accounting period of the company in which the loss in its notional business was incurred.

(8) “Relevant loss relief provision” means any of the following provisions—

(a) section 392A (Schedule A losses),

(b) section 392B (losses from overseas property businesses),

(c) section 393 (trade losses),

(d) section 396 (Case VI losses).]

Textual Amendments

F91 Ss. 785ZA, 785ZB inserted (with effect in accordance with s. 83(4)-(6) of the amending Act) by Finance Act 2006 (c. 25), s. 83(2)

[F92 785A Rent factoring of leases of plant or machinery U.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) apart from this section, some or all of the amount or value of the consideration for the transfer (“the relevant portion of the consideration”) would fall to be brought into account neither—

(i) as income, nor

(ii) as a capital allowances disposal receipt,

for the purpose of calculating P’s tax liability.

(2) In any such case, the relevant portion of the consideration—

(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 in a period of account to the extent that it is receivable in that period of account.

(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.

[F93 (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.]

(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

F92 S. 785A inserted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 2004 (c. 12), s. 135(1)

F93 S. 785A(5A) inserted (19.7.2006) by Finance Act 2006 (c. 25), Sch. 6 para. 7(2)

Valid from 21/07/2008

[F94 785B Plant and machinery leases: capital receipts to be treated as income U.K.

(1) This section applies if—

(a) there is an unconditional obligation, under a lease of plant or machinery or a relevant arrangement, to make a relevant capital payment (at any time), or

(b) a relevant capital payment is made under such a lease or arrangement otherwise than in pursuance of such an obligation.

(2) The lessor is treated for corporation tax purposes as receiving income attributable to the lease of an amount equal to the amount of the capital payment.

(3) The income is treated—

(a) if subsection (1)(a) applies, as income for the period of account in which there is first an obligation of the kind mentioned there, and

(b) if subsection (1)(b) applies, as income for the period of account in which the payment is made.]

Textual Amendments

F94 Ss. 785B-785E inserted (with effect in accordance with Sch. 20 para. 1(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 1(1) (with transitional modifications in Sch. 20 para. 1(3))

Valid from 21/07/2008

[F94 785C Section 785B: interpretation U.K.

(1) The expressions used in section 785B and this section are to be interpreted as follows.

(2) “Capital payment” means any payment except one which, if made to the lessor—

(a) would fall to be included in a calculation of the lessor's income for corporation tax purposes, or

(b) would fall to be included in such a calculation but for section 502B (rental earnings under long funding finance lease).

(3) “Lease” includes—

(a) a licence, and

(b) the letting of a ship or aircraft on charter or the letting of any other asset on hire,

and “lessor” and “lessee” are to be read accordingly.

(4) “Lease of plant or machinery” includes a lease of plant or machinery and other property but does not include—

(a) a lease where the income attributable to the lease received by the lessor (if any) would be chargeable to tax under Schedule A, or

(b) a lease of plant or machinery where the lessor has incurred what would (but for section 34A of the Capital Allowances Act) be qualifying expenditure (within the meaning of Part 2 of that Act) on the plant or machinery.

(5) “Relevant arrangement” means any agreement or arrangement relating to a lease of plant or machinery, including one made before the lease is entered into or after it has ended (and, accordingly, “lessor” and lessee” include prospective and former lessors and lessees).

(6) A capital payment, in relation to a lease or relevant arrangement, is “relevant” if condition A or B is met (but this is subject to subsection (9)).

(7) Condition A is that the capital payment is payable (or paid), directly or indirectly, by (or on behalf of) the lessee to (or on behalf of) the lessor in connection with—

(a) the grant, assignment, novation or termination of the lease, or

(b) any provision of the lease or relevant arrangement (including the variation or waiver of any such provision).

(8) Condition B is that rentals payable under the lease are less than (or payable later than) they might reasonably be expected to be if there were no obligation to make the capital payment (and the capital payment were not made).

(9) A capital payment is not “relevant” if or to the extent that—

(a) the capital payment reduces (or would but for section 536 of the Capital Allowances Act reduce) the amount of expenditure incurred by the lessor for the purposes of the Capital Allowances Act in respect of the plant or machinery in question,

(b) the capital payment is compensation for loss resulting from damage to, or damage caused by, the plant or machinery in question, or

(c) the capital payment would fall (or falls) to be brought into account by the lessor as a disposal receipt within the meaning of Part 2 of the Capital Allowances Act (see section 60(1) of that Act).

(10) References to payment include the provision of value by any means other than the making of a payment, and accordingly—

(a) references to the making of a payment include the passing of value (by any other means), and

(b) references to the amount of the payment include the value passed.]

Textual Amendments

F94 Ss. 785B-785E inserted (with effect in accordance with Sch. 20 para. 1(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 1(1) (with transitional modifications in Sch. 20 para. 1(3))

Valid from 21/07/2008

[F94 785D Section 785B: lease of plant and machinery and other property U.K.

(1) This section applies if section 785B applies in relation to a lease of plant or machinery and other property (see section 785C(4)).

(2) The relevant capital payment is to be apportioned, on a just and reasonable basis, between—

(a) the plant and machinery, and

(b) the other property.

(3) If the income (if any) received by the lessor that is attributable to any of the plant or machinery is chargeable to tax under Schedule A, treat that plant or machinery as falling within subsection (2)(b) (and not subsection (2)(a)).

(4) Section 785B(2) has effect as if the reference to the amount of the capital payment were to such amount as is apportioned under subsection (2) in respect of the plant or machinery within subsection (2)(a).]

Textual Amendments

F94 Ss. 785B-785E inserted (with effect in accordance with Sch. 20 para. 1(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 1(1) (with transitional modifications in Sch. 20 para. 1(3))

Valid from 21/07/2008

[F94 785E Section 785B: expectation that relevant capital payment will not be paid U.K.

(1) This section applies for corporation tax purposes if—

(a) section 785B applies by virtue of subsection (1)(a) of that section, and

(b) at any time, the lessor reasonably expects that the relevant capital payment will not be paid (or will not be paid in full).

(2) For the purposes of calculating the profits of the lessor, a deduction is allowed for the period of account which includes that time.

(3) The amount of the deduction is equal to the amount reasonably expected not to be paid.

(4) No other deduction is allowed in respect of the matters mentioned in subsection (1).]

Textual Amendments

F94 Ss. 785B-785E inserted (with effect in accordance with Sch. 20 para. 1(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 1(1) (with transitional modifications in Sch. 20 para. 1(3))

786 Transactions associated with loans or credit. U.K.

M11 (1) This section applies as respects any transaction effected with reference to the lending of money or the giving of credit, or the varying of the terms on which money is lent or credit is given, or which is effected with a view to enabling or facilitating any such arrangement concerning the lending of money or the giving of credit.

(2) Subsection (1) above has effect whether the transaction is effected between the lender or creditor and the borrower or debtor, or between either of them and a person connected with the other or between a person connected with one and a person connected with the other.

(3) If the transaction provides for the payment of any [F95 relevant annual payment], the payment shall be treated for all the purposes of the Tax Acts as if it were a payment of annual interest.

[F96 (3A) In subsection (3) “relevant annual payment” means a payment which is not interest but is—

(a) an annuity or other annual payment falling within Part 5 of ITTOIA 2005 and chargeable to income tax otherwise than as relevant foreign income; or

(b) an annuity or other annual payment chargeable to corporation tax under Case III of Schedule D.]

(4) F97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If under the transaction a person assigns, surrenders or otherwise agrees to waive or forego income arising from any property (without a sale or transfer of the property) then, without prejudice to the liability of any other person, [F98 he shall be chargeable—

(a) to income tax, or

(b) to corporation tax under Case VI of Schedule D,

on a sum] equal to the amount of income assigned, surrendered, waived or foregone.

[F99 (5ZA) But subsection (5) above does not apply if the person mentioned in that subsection is, as a result of section 774B or 774D (structured finance arrangements), chargeable to tax on the amount of income assigned, surrendered, waived or forgone.]

[F100 (5A) Income tax charged by virtue of subsection (5)(a) above shall be charged on the full amount of the income assigned, surrendered, waived or forgone in the year of assessment.]

(6) If credit is given for the purchase price of any property, and the rights attaching to the property are such that, during the subsistence of the debt, the purchaser’s rights to income from the property are suspended or restricted, he shall be treated for the purposes of subsection (5) above as if he had surrendered a right to income of an amount equivalent to the income which he has in effect foregone by obtaining the credit.

(7) The amount of any income payable subject to deduction of income tax shall be taken for the purposes of subsection (5) above as the amount before deduction of tax.

(8) References in this section to connected persons shall be construed in accordance with section 839.

Textual Amendments

F95 Words in s. 786(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 320(2) (with Sch. 2)

F96 S. 786(3A) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 320(3) (with Sch. 2)

F97 S. 786(4) repealed (with effect in accordance with s. 159(1) of the repealing Act) by Finance Act 1996 (c. 8), s. 159(1), Sch. 41 Pt. 5(21), Note 1; S.I. 1996/2646, art. 2

F98 Words in s. 786(5) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 320(4) (with Sch. 2)

F99 S. 786(5ZA) inserted (19.7.2006) by Finance Act 2006 (c. 25), Sch. 6 para. 8(2)

F100 S. 786(5A) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 320(5) (with Sch. 2)

Marginal Citations

M11 Source—1970 s.496

787 Restriction of relief for payments of interest. U.K.

M12 (1) Relief shall not be given to any person under any provision of the Tax Acts in respect of any payment of interest if a scheme has been effected or arrangements have been made (whether before or after the time when the payment is made) such that the sole or main benefit that might be expected to accrue to that person from the transaction under which the interest is paid was the obtaining of a reduction in tax liability by means of any such relief.

[F101 (1A) This section has effect in relation to Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships) but taking the reference in subsection (1) above to giving relief to any person in respect of any payment of interest as including a reference to the bringing into account by any person in accordance with that Chapter of any debit in respect of interest (whether a payment or not); and other references in this section to relief shall be construed accordingly.]

(2) In this section “relief” means relief by way of deduction in computing profits or gains or deduction or set off against income or total profits.

[F102 (3) Where the relief is claimed by virtue of section 403—

(a) in respect of a deficit to which section 83 of the Finance Act 1996 applies (non-trading deficit on loan relationships), or

(b) in respect of trading losses, in a case where in computing those losses debits in respect of loan relationships are treated under section 82(2)(b) of that Act as expenses of the trade which are deductible in computing the profits of the trade,

any question under this section as to what benefit might be expected to accrue from the transaction in question shall be determined by reference to the claimant company and the surrendering company taken together.]

Textual Amendments

F101 S. 787(1A) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 53(2)

F102 S. 787(3) substituted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 53(3)

Modifications etc. (not altering text)

C27 S. 787 extended (with effect in accordance with s. 56 of the affecting Act) by Finance Act 2005 (c. 7), Sch. 2 para. 8

Marginal Citations

M12 Source—1976 s.38