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Finance Act 2008, Cross Heading: Capital received in respect of lease to be treated as income is up to date with all changes known to be in force on or before 30 August 2024. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations.
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1(1)In Chapter 6 of Part 17 of ICTA (tax avoidance: miscellaneous), after section 785A insert—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.
(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.
(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).
(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).”
(2)The amendment made by sub-paragraph (1) has effect in relation to—
(a)cases where there is first an obligation of the kind mentioned in subsection (1)(a) of section 785B of ICTA on or after 13 December 2007, and
(b)capital payments within subsection (1)(b) of that section made on or after that date.
(3)In relation to a case where the condition in paragraph (a) or (b) of section 785B(1) of ICTA was met before 12 March 2008, sections 785B to 785E of that Act have effect as if—
(a)for section 785C(4) there were substituted—
“(4)“Lease of plant or machinery”—
(a)includes an equipment lease within the meaning of Chapter 14 of Part 2 of the Capital Allowances Act, but
(b)subject to that, does not include a lease of plant or machinery and other property.”, and
(b)section 785D were omitted.
2(1)In ITA 2007, after section 809 insert—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 income 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.
(1)The expressions used in section 809ZA 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 income tax purposes, or
(b)would fall to be included in such a calculation but for section 148A of ITTOIA 2005 (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 Part 3 of ITTOIA 2005 (property income), or
(b)a lease of plant or machinery where the lessor has incurred what would (but for section 34A of CAA 2001) 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 CAA 2001 reduce) the amount of expenditure incurred by the lessor for the purposes of CAA 2001 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 CAA 2001 (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.
(1)This section applies if section 809ZA applies in relation to a lease of plant or machinery and other property (see section 809ZB(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 Part 3 of ITTOIA 2005 (property income), treat that plant or machinery as falling within subsection (2)(b) (and not subsection (2)(a)).
(4)Section 809ZA(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).
(1)This section applies for income tax purposes if—
(a)section 809ZA 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).”
(2)The amendment made by sub-paragraph (1) has effect in relation to—
(a)cases where there is first an obligation of the kind mentioned in subsection (1)(a) of section 809ZA of ITA 2007 on or after 13 December 2007, and
(b)capital payments within subsection (1)(b) of that section made on or after that date.
(3)In relation to a case where the condition in paragraph (a) or (b) of section 809ZA(1) of ITA 2007 was met before 12 March 2008, sections 809ZA to 809ZD of that Act have effect as if—
(a)for section 809ZB(4) there were substituted—
“(4)“Lease of plant or machinery”—
(a)includes an equipment lease within the meaning of Chapter 14 of Part 2 of CAA 2001, but
(b)subject to that, does not include a lease of plant or machinery and other property.”, and
(b)section 809ZC were omitted.
3U.K.In section 785A of ICTA (rent factoring of leases of plant or machinery), after subsection (5A) insert—
“(5B)This section does not apply in relation to a relevant capital payment to which section 785B below or section 809ZA of ITA 2007 applies; and “relevant capital payment” here has the same meaning as in that section.”
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