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

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

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

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

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

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

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