BLM35025 - Taxation of leases that
are not long funding leases: sale and leaseback: sale and finance
leasebacks - tax adjustments
Where the second method under UK GAAP (SSAP 21) is followed
the adjustments required for tax purposes are as follows:
- For the purpose of computing the lessee's
rental deductions, the sale and lease-back of the asset is
recognised. That is, there is a new finance lease and the rental
payments are, in principle, allowable for tax purposes in the same
way as for any other finance lease. But the actual depreciation
charge in the accounts will reflect the old book value of the asset
and so the accounts alone do not provide the right answer. The
appropriate deduction for the capital element of the lease rentals
will be an amount equal to the depreciation which would have been
debited in the profit and loss account had the asset been shown in
the balance sheet at the value for which it was sold. The rate of
depreciation actually applied to the asset in the accounts will
normally indicate the rate to be applied to the asset in this
computation.
- The profit on the sale of the asset is
again a capital profit. This profit will not have been taken to the
profit and loss account so no tax adjustment will be needed.
- There will be the usual capital allowances
disposal value to be brought into account on the sale of the
asset.
- Where the asset is sold for more than its
original cost there may also be a capital gains charge on the
profit on the sale of the asset. Whether there is an actual charge
will, of course, depend on the reliefs available to the seller, see
also
BLM35045).
- The finance lessor cannot have first-year
allowance (if, exceptionally, any is otherwise available) and he
will get writing-down allowances on, as a maximum, the original
cost of the asset to the seller; that is, the cost to the lessee
who has now leased the asset back (CAA01/S217 and S218, see
BLM35055).
- The deduction for the lessee’s
rentals will be restricted under CAA01/S228B if the disposal value
was restricted under CAA01/S222, see
CA28550.
See examples at
BLM35030.
