Finance Leasing Manual - FLM6.62

Acceleration of capital allowances through group relief

Finance lessors also used subsidiaries with different year ends to accelerate the use of capital allowances through group relief. This worked by writing batches of leases in new subsidiaries with different year ends from the main group companies. This meant that the excess of capital allowances over rentals in the early years of a finance lease would give rise to a loss available for group relief. The accounting period of the finance leasing subsidiary would straddle two accounting periods of the main group companies. A lacuna in the group relief rules permitted the lessor company to surrender the whole of its loss against the profits of the main group companies for the earlier accounting period, by making multiple surrenders to different group companies. The effect was to accelerate the relief by up to 12 months. This defect has been removed by Section 41 and Schedule 7 F(No 2)A 1997.