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 or minimum lease payments are more than 80% of fair value or term is more than 65% of the useful economic life Not: 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 plus unrelievable 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