BIM61201 - Leasing: avoidance: assets other than land: overview

ICTA88/S781 - ICTA88/S785 counter certain avoidance devices based on arrangements for the leasing of plant and machinery, and other assets (other than land).

Such arrangements are, in general, designed to produce:

• a capital receipt to the trader (or an associate), and
• the allowance to the trader, in the early years of the lease, of relief in respect of an inflated rental.

The legislation may also apply where assets are sold at overvalue followed by a leaseback at an inflated rental.

The main provisions are summarised below:

ICTA88/S781

• Where a tax deduction is available under a lease of any asset other than land or buildings, and
• the payer receives or has received at any time a capital sum ( BIM61215) in respect of the lessee’s interest in the lease,
• the amount on which relief has been obtained (or, if less, the capital sum) is charged under:

• See BIM61205 - BIM61235.

ICTA88/S782

• Where an asset (other than land or buildings) is sold and leased back,
• if, before the sale and leaseback, the asset was used in the lessee's trade and owned by the persons carrying on the trade,
• ICTA/S781 shall not apply.
• Instead, the allowable deduction for rent is limited to the ‘commercial rent’ ( BIM61245).
• See BIM61240 - BIM61265.

What to look for

Examine the following types of leasing arrangements with the provisions of ICTA88/S781 and ICTA88/S782 in mind: agreements under which;

• a high rental is payable in the first few years and a low rental thereafter; or
• the commercial rent has been inflated by sales at overvalue followed by a leaseback, or
• the lessee receives a capital sum in respect of the lease and ICTA88/S782 does not apply.