sale of lessors finance act 2006 sch 10 *half of company’s capital equipment leased (not property...
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Sale of Lessors
Finance Act 2006 Sch 10*Half of company’s capital equipment leased (not property companies); or•Half of company’s income derives from leasing
•‘Qualifying change of ownership’–75% subsidiary (or control, where no share capital)–75% entitlement to distributable profits and capital on winding-up–Anti-avoidance – ICTA Schedule 18–‘relevant change in relationship’ between parent and subsidiary
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Sale of Lessors
• The charge
– Subsidiary receives taxable income– Subsidiary’s accounting period ends
– ‘basic amount’: BS value of equipment minus – TWDV: unrelieved capex in main, class and single asset pools
– Relief of an equal amount at start of next accounting period
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Long funding lease
• Finance Act 2006 Schedule 8• ‘Long funding lease’
– Not short– Not of ‘background’ equipment– Not more than 10% of value of ‘background’ equipment and 5%
of land value• ‘Short’• Under 5 years• Under 7 years if
• Finance lease• Residual value less than 5%• Escalation limited to 10% between first and second year plus 10%
between second and final year
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Long funding lease
• Funding lease:finance lease orminimum lease payments are more than 80% of fair value orterm is more than 65% of the useful economic lifeNot: hire purchase, conditional sale etc (CAA 2001 s 67)
one of a series which in aggregate exceed 65% test old equipment previously leased for more than
10 years
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Long funding lease
• Equipment deemed to belong to lessee• Lessee deemed to have incurred capex at
commencement• Operating lease:
– Capex equals market value at later of commencement or bringing into use
• Finance lease:– Capex equals present value of minimum lease payments plusunrelievable pre-commencement rentals (if any)- Unless a main purpose is to maximise CAs, when market value
at commencement is substituted
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Long funding lease
• Disposals:– Termination of the lease is a disposal– Disposal value – operating lease
• Excess of market value at commencement over the residual value plus
• any amounts rebated to the lessee on termination
- Disposal value – finance lease- Any amounts rebated to the lessee on termination plus - balance of minimum lease payments at termination (if early) minus - any amounts payable by the lessee to the lessor on termination
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Long funding lease
• Anti-avoidance– Section 70V - international leasing
• Long funding lease or hire purchase cross-border into the UK
• Non-long funding lease cross-border out of the UK
• Sole or main purpose is obtaining a tax advantage
• Lease out of UK deemed a long funding lease
• So no capital allowances for intermediate lessor
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