The examples below illustrate the working of ICTA88/S781.
Alan, a trader, leases plant from B Ltd. (a leasing company) for
23 years at a rent of £4,000 a year for three years and
£1 a year thereafter.
After three years Alan assigns his lease to C Ltd. (a
financial dealing company entitled to write off, over the remaining
20 years, the price it pays for the assignment) for £5,000.
This amount £5,000 being less than the £12,000
relieved is chargeable on Alan under ICTA88/S781 (1) (or Case VI
for years up to 2004-05).
D Ltd. (a leasing company) has a trading subsidiary, E Ltd.
D Ltd. hires plant from Freda for 20 years at a rental of
£40,000 a year for three years and thereafter at £1,000 a
year.
On the following day D Ltd. sub-lets the plant to E Ltd. for
20 years less one day at £80,000 a year for three years and
thereafter at £1,000 a year.
D Ltd. then assigns its lease from Freda, with the benefit of
the sublease, to G Ltd. (a financial dealing company) for
£70,000.
The relieved payments by D Ltd's associate E Ltd. exceed this
capital sum £70.000, which is therefore assessable on D Ltd
under Case VI.
A machine, the cash price of which would be £90,000, is
acquired under a hire-purchase agreement providing for three annual
payments of £40,000 (£30,000 capital and £10,000
rent). The machine is brought into use immediately and so capital
allowances are given on the full £90,000.
After two annual payments have been made, the benefit of the
hire-purchase agreement is assigned by the hire-purchaser to a
third party for £75,000.
CAA01/S68 applies to include in the disposal proceeds the
capital expenditure on the third payment of £30,000 that has
still to be incurred. So the disposal proceeds are £105,000 (=
£75,000 + £30,000) and this is restricted to
£90,000, the total capital expenditure which would have been
incurred if the contract had run its full length - see CA23330).
Capital allowances given amount to nil (writing down allowances
£22,500 and £16,875 = £39,375 less balancing charge
£39,375 = nil).
There have been two relieved payments of £10,000 (total
£20,000). But ICTA88/S781 (9) and ICTA88/S784 operate to bring
into charge under ICTA88/S781 (1) or Case VI that part of the
capital sum that is not brought into the capital allowances
computation under CAA01/S68. The part of the capital sum that is
not brought into the capital allowance computation is £15,000
(= £30,000 + £75,000 - £90,000).
So here, the capital sum of £75,000 is reduced to
£15,000 under ICTA88/S784 (1). As that amount of £15,000
has not been brought into the capital allowances computation, the
£15,000 is brought into charge under ICTA88/S781 (1) or Case
VI.
