Finance Act 2006

Sale of lessors

82Sale etc of lessor companies etc

Schedule 10 (which makes provision about the sale etc of lessor companies etc) has effect.

83Restrictions on use of losses etc: leasing partnerships

(1)In section 403 of ICTA (amounts which may be surrendered by way of group relief), in subsection (4) (section 403 subject to certain exceptions), at the end insert “and

section 785ZA (restrictions on use of losses: leasing partnerships)”.

(2)After section 785 of ICTA (meaning of expressions for purposes of sections 781 to 784 (assets leased to traders and others)) insert—

“785ZARestrictions on use of losses: leasing partnerships

(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.

785ZBSection 785ZA: definitions

(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).”.

(3)After section 261 of CAA 2001 (special leasing: life assurance business) insert—

“261ASpecial leasing: leasing partnerships

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

(a)a company carries on a business in partnership with other persons in a chargeable period of the partnership,

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

(c)the company is entitled to an allowance under section 19 (special leasing of plant or machinery) for any chargeable period comprised (wholly or partly) in the chargeable period of the partnership, and

(d)the interest of the company in the leasing business during the chargeable period of the partnership is not determined on an allowable basis.

(2)Subsections (3) to (6) of section 260 do not apply in relation to the allowance.

(3)For the purposes of this section—

(a)“business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to FA 2006 (sale etc of lessor companies etc), and

(b)section 785ZA of ICTA applies for determining whether the interest of the company in the leasing business during the chargeable period of the partnership is determined on an allowable basis.”.

(4)The amendments made by this section have effect in relation to any business carried on by a company in partnership in any accounting period of the partnership ending on or after 5th December 2005.

(5)But, in relation to any accounting period of the partnership beginning before 5th December 2005 and ending on or after that date, those amendments have effect only if—

(a)the company starts to carry on the business in partnership on or after that date, or

(b)a relevant change in the interest of the company in the business occurs on or after that date.

(6)A relevant change in the interest of the company in the business occurs at any time if—

(a)immediately before that time its interest in the business during any accounting period of the partnership is determined on an allowable basis (within the meaning given by section 785ZA of ICTA), and

(b)immediately after that time its interest in the business during that period is not so determined.

84Disposal of plant or machinery subject to lease where income retained

(1)CAA 2001 is amended as follows.

(2)In section 66 (list of provisions outside Chapter 5 of Part 2 about disposal values), after the entry relating to section 222 of CAA 2001, insert—

(3)After section 228J (plant or machinery subject to further operating lease) insert—

“Disposal of plant or machinery subject to lease where income retained

228KDisposal of plant or machinery subject to lease where income retained

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

(a)on any day (“the relevant day”) a person (“the lessor”) carries on a business of leasing plant or machinery (the “leasing business”),

(b)on the relevant day the lessor sells or otherwise disposes of any relevant plant or machinery subject to a lease to another person,

(c)the lessor remains entitled immediately after the disposal to some or all of the rentals under the lease in respect of the plant or machinery which are payable on or after the relevant day, and

(d)the lessor is required to bring a disposal value of the plant or machinery into account under this Part.

(2)The disposal value to be brought into account is determined as follows.

(3)If the amount or value of the consideration for the disposal exceeds the limit that would otherwise be imposed on the amount of the disposal value by section 62 (general limit) or 239 (limit on disposal value where additional VAT rebate)—

(a)that limit is not to apply, and

(b)the whole of the amount or value of the consideration for the disposal is to be the disposal value to be brought into account.

(4)In any other case, the disposal value to be brought into account is the sum of—

(a)the amount or value of the consideration for the disposal, and

(b)the value of the rentals under the lease in respect of the plant or machinery (see subsections (7) and (8)) which are payable on or after the relevant day and to which the lessor remains entitled immediately after the disposal,

but subject to the limit imposed on the amount of the disposal value by section 62 or 239.

(5)If—

(a)any of the rentals under the lease are receivable by the lessor on or after the relevant day, and

(b)the value of any of those rentals is represented in the amount of the disposal value under subsection (4)(b),

the amount of those rentals that is equal to their value as so represented is left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

(6)If, in determining under subsection (5) the amount of any rental to be so left out of account, it is necessary to apportion the amount of the rental, the apportionment is to be made on a just and reasonable basis.

(7)For the purposes of this section, the value of any rentals under the lease in respect of the plant or machinery is taken to be the amount of the net present value of the rentals (see section 228L).

(8)If any land or other asset which is not plant or machinery is subject to the lease, the value of any rentals under the lease in respect of the plant or machinery is taken to be so much of the amount of the net present value of the rentals as, on a just and reasonable basis, relates to the plant or machinery.

(9)This section is supplemented by—

(a)section 228L (which provides rules for determining the net present value of the rentals), and

(b)section 228M (which defines other expressions used in this section).

228LDetermining the net present value of the rentals for purposes of s.228K

(1)For the purposes of section 228K, the amount of the net present value of the rentals is calculated as follows—

• Step 1

  Find the amount (“RI”) of each rental payment—

  (a)

  which is payable at any time during the term of the lease, and

  (b)

  which is payable on or after the relevant day.

• Step 2

  For each rental payment find the day (“the payment day”) on which it becomes payable.

• Step 3

  For each rental payment find the number of days in the period (“P”) which—

  (a)

  begins with the relevant day, and

  (b)

  ends with the payment day.

• Step 4

  Calculate the net present value of each payment (“NPVRI”) by applying the following formula—

  

  where—

  • T is the temporal discount rate, and

  • i is the number of days in P divided by 365.

• Step 5

  Add together each amount of NPVRI determined under step 4.

(2)For the purposes of this section the “term” of a lease has the meaning given in Chapter 6A of this Part.

(3)For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.

(4)The regulations may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).

(5)Subsection (5) of that section (power of Commissioners to specify rate by order in certain circumstances) applies in relation to regulations under this section as it applies in relation to regulations under that section.

228MOther definitions for the purposes of s.228K

(1)This section applies for the purposes of section 228K.

(2)“Business of leasing plant or machinery”—

(a)has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

(b)has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).

(3)“Lease” includes—

(a)an underlease, sublease, tenancy or licence, and

(b)an agreement for any of those things.

(4)“Relevant plant or machinery”, in relation to a business of leasing plant or machinery, means plant or machinery on whose provision expenditure is incurred wholly or partly for the purposes of the business.”.

(4)In Schedule 1 (abbreviations and defined expressions), in Part 1 (abbreviations), insert at the end—

(5)The amendments made by this section have effect in relation to any disposal made on or after 5th December 2005.

(6)But any rentals that are receivable by the lessor before 22nd March 2006 are to be left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

85Restrictions on effect of elections under section 266 of CAA 2001

(1)CAA 2001 is amended as follows.

(2)In section 266 (election where predecessor and successor are connected persons), in subsection (7) (sections 104, 108 and 265 not to apply if election is made), at the end insert “(but see section 267A)”.

(3)In section 267 (effect of election), at the end insert—

“(6)This section is subject to section 267A.”.

(4)After that section insert—

“267ARestriction on effect of election

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

(a)on any day (“the relevant day”) a person (“the predecessor”) carries on a business of leasing plant or machinery,

(b)on the relevant day another person (“the successor”) succeeds to the business, and

(c)the predecessor and the successor make an election under section 266.

(2)Neither—

(a)section 266(7), nor

(b)the provisions of section 267,

have effect in relation to any plant or machinery which, in determining whether the business is a business of leasing plant or machinery on the relevant day, is qualifying leased plant or machinery.

(3)In this section “business of leasing plant or machinery”—

(a)has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

(b)has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).”.

(5)The amendments made by this section have effect in relation to any succession occurring on or after 5th December 2005.