The measure

Draft legislation is published today to address two types of avoidance involving leasing.

The avoidance falls into two categories:

• arrangements under which a lessor sells rental income representing substantially all of the value of the asset whilst outside the charge to UK tax and then enters the UK charge to tax and claims capital allowances or a rental rebate for the full original value of the asset; and
• arrangements whereby a lessor that would otherwise begin to pay profits on its rental income because capital allowances are no longer in excess of rental income sells the income and migrates out of the charge to UK corporation tax to avoid corporation tax arising on the income.

The measures seek to address the avoidance in the following ways:

• by seeking to prevent lessors from claiming capital allowances on amounts in respect of income on which the lessor is not subject to corporation tax by restricting allowances to the value of future taxable income plus any residual value;
• by restricting deductions available for rental rebates to an amount equal to the amount of income brought into corporation tax; and
• by bringing in a capital allowance disposal value ignoring any reduction in market value of assets caused by a sale of lease rentals.
  

Who will be affected?

Lessors will have to consider the new measures whenever they:

• incur capital expenditure;
• dispose of leased plant or machinery; or
• pay a rental rebate.
   

When?

The rules apply to capital expenditure incurred on or after 9 December, disposal events occurring on or after 9 December and rent rebates payable on or after 9 December.