Transfer and long funding leaseback: restrictions on lessee’s allowances
21.Paragraph 12 amends subsection 51A(10) of CAA by inserting a reference to new section 70DA(2). This makes it clear that no annual investment allowance is available to the lessee under a transfer and long funding leaseback arrangement.
22.Paragraph 13 amends subsection 52(5) of CAA by inserting a reference to new section 70DA. This makes it clear that no first year allowance is available to the lessee under a transfer and long funding leaseback arrangement.
23.Paragraph 14 amends subsection 57(3) of CAA to ensure that a person’s available qualifying expenditure does not include an amount excluded by new section 70DA.
24.Paragraph 15 inserts new section 70DA after section 70D of CAA. This section has a similar effect to sections 217 and 218 of CAA which deny first year allowances and limit the qualifying expenditure in an arrangement where an existing business asset is sold and leased back to the same person or someone connected to them. That legislation only applies to a claim by new owners of the plant or machinery who leases it back to the original seller or someone connected to them. Because the lessee under a long funding lease is deemed to own the leased asset it is the lessee in a transfer and long funding leaseback arrangement who has the qualifying expenditure and so is the person to whom new section 70DA applies.
25.Subsection (1) sets out the circumstances where new section 70DA applies. These are where a person (S) transfers (see subsection (7)) plant or machinery to another person (B) and after the transfer the plant or machinery is used by S or a person connected to S (CS) and is available to be so used because it has been leased under a long funding lease.
26.Paragraph 16 inserts new subsection (1C) into section 70H of CAA. This ensures that where the arrangements involve a transfer and long funding leaseback as defined in new section 70DA(1) the lessee is not entitled to treat the lease as a non-long funding lease. This makes it clear, in case of any doubt, that the lessee cannot claim a deduction for the capital element of their lease rental payments.
27.Paragraph 17 provides that the amendments made by paragraphs 12 to 16 apply to leasebacks where the term of the lease commenced on or after 13 November 2008. The definition of commencement is in paragraph 27.
