Plant and machinery leasing: anti-avoidance
The measure
As part of the Budget, HMRC have announced 'minor amendments' and clarifications to draft legislation on plant and machinery leasing introduced as part of the Pre-Budget Report.
HMRC have also proposed changes to existing definitions of a sale and leaseback to ensure that they apply where an asset continues to be used by the seller following a sale.
On 13 November 2008 measures were announced with immediate effect to counter a range of perceived avoidance involving the grant of long funding leases. The announcement was accompanied by draft legislation.
The Pre-Budget Report 2008 measures included changes to certain sale/lease and long funding leasebacks to: prevent a step up in capital allowances for assets which have appreciated in value; deny a first year allowance under the leaseback and introduce a new definition of disposal value at lease termination intended to prevent relief under a long funding lease exceeding relief that would have been available with loan financing. The draft legislation also amended the definition of a capital receipt under a plant/machinery lease that may be taxable as income. A further aspect of the changes was to deny a long funding lessee the choice as to whether or not to claim long funding lease treatment for a lease under a sale/lease and leaseback arrangement.
Who will be affected?
Taxpayers who have entered structured long funding lease arrangements or who are contemplating sale and leaseback transactions.
When?
The changes announced today will have immediate effect.
Today's 'minor amendments' to the PBR measures are intended to ensure that any part of an initial payment under a lease which is not brought into account for capital allowances purposes should be taxable as income, as originally intended. The proposed changes to the definition of a sale and leaseback may be intended to ensure that anti-avoidance, which can restrict or deny the capital allowances basis for a buyer, applies regardless of the legal form of the arrangement under which the seller is able to continue to use the asset following a sale.
