Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
261

      (7)
Where a sublease is for an indefinite period, the period of the
sublease is to be taken for the purposes of this paragraph to be a
period of more than 7 years, unless the condition in sub-paragraph
(8) is met.
      (8)
The condition is that—
5
(a)
the amount payable under the sublease must be reviewed
at least once every 7 years, and
(b)
if the amount payable under the sublease is found on such
a review not to be the market rate applicable at the time of
the review, it must be changed to the market rate
10
applicable at that time.
      (9)
Where there is an option to continue a sublease for an indefinite
period, the period of the sublease is to be taken for the purposes of
this paragraph to be a period of more than 7 years, unless the
condition in sub-paragraph (10) is met.
15
     (10)
The condition is that the amount payable under the sublease for
any period for which the option may be exercised is the market
rate applicable at the start of that period, except that—
(a)
the amount for the time being payable under the sublease
may subsequently be changed at any time to the market
20
rate applicable at that time,
(b)
the amount payable under the sublease must be reviewed
at least once every 7 years, and
(c)
if the amount payable under the sublease is found on such
a review not to be the market rate applicable at the time of
25
the review, it must be changed to the market rate
applicable at that time.
     (11)
Any reference in this paragraph to a lease by T includes a reference
to a contract of affreightment entered into by T that provides for
the carriage of goods by the qualifying ship.
30
Anti-avoidance
91E
Paragraph 91A(2) does not have effect in the case of the lease if the
main purpose, or one of the main purposes—
(a)
of the leasing of the ship,
(b)
of a series of transactions of which the leasing of the ship is
35
one, or
(c)
of any of the transactions in such a series,

was to obtain a writing down allowance determined without
regard to any of paragraphs 90, 92 and 94 to 102 in respect of
expenditure incurred by any person on the provision of the ship.
40
Consequences of paragraph 91A(2) ceasing to have effect
91F   (1)
This paragraph applies if sub-paragraph (2) of paragraph 91A
ceases to have effect in relation to a lease (the “existing lease”)
because one or more of the conditions in sub-paragraph (3) of that
paragraph cease to be met.
45
      (2)
In any such case it is to be assumed for tax purposes that—

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
262

(a)
the existing lease terminates at the time of the cessation;
(b)
another lease (the “new lease”) is entered into immediately
after the cessation;
(c)
the term of the new lease is the portion of the term of the
existing lease that remains unexpired at the time of the
5
cessation;
(d)
the date on which the cessation occurs is the date of both—
(i)
the inception of the new lease, and
(ii)
the commencement of the term of the new lease.
      (3)
Where this paragraph applies, subsection (4) of section 70X of the
10
Capital Allowances Act 2001 (transfers, assignments etc by lessee)
does not.
      (4)
For the purposes of this paragraph, the following expressions
have the meaning given in Chapter 6A of Part 2 of the Capital
Allowances Act 2001 (interpretation of provisions about long
15
funding leases)—
“commencement”, in relation to the term of a lease;
“inception”, in relation to a lease;
“term”, in relation to a lease;
“terminate”.”.
20
      (4)
In paragraph 93 (certificates required to support claim by lessor), in sub-
paragraph (1)(b) after “in relation to the lease” insert “and, if the lease is one
that would (apart from paragraph 91A) fall to be regarded as a long funding
lease for the purposes of Part 2 of the Capital Allowances Act 2001, that
paragraph 91A(2) has effect in relation to the lease.”
25
      (5)
Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the
amendments made by this paragraph.
Capital Allowances Act 2001
Withdrawal of first year allowances for lessors of certain plant or machinery
11    (1)
Section 46 of CAA 2001 (general exclusions applying to certain sections) is
30
amended as follows.
      (2)
For subsection (5) (exception of sections 45A, 45D, 45E and 45H from general
exclusion 6 (leasing)) substitute—
“(5)
General exclusion 6 does not prevent expenditure being first-year
qualifying expenditure under any of the following provisions—
35
section 45A, if the condition in subsection (6) is met,
section 45D,
section 45H, if the condition in subsection (6) is met.
(6)
The condition is that the plant or machinery is provided for leasing
under an excluded lease of background plant or machinery for a
40
building, within the meaning given by section 70R.”.
      (3)
The amendment made by this paragraph has effect in relation to expenditure
incurred on or after 1st April 2006.

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
263

Plant or machinery treated as owned by person entitled to benefit of contract etc
12    (1)
Section 67 of CAA 2001 is amended as follows.
      (2)
After “qualifying activity”, in each place where those words occur in the
section, insert “or corresponding overseas activity”.
      (3)
In subsection (2), insert at the end—
5

“This subsection has effect subject to, and in accordance with,
subsections (2A) to (2C).”.
      (4)
After subsection (2) insert—
“(2A)
If the contract is one which, in accordance with generally accepted
accounting practice, falls (or would fall) to be treated as a lease,
10
subsection (2B) applies.
(2B)
Where that is the case, the plant or machinery is to be treated under
subsection (2) as owned by the person at any time only if the contract
falls (or would fall) to be treated by that person in accordance with
generally accepted accounting practice as a finance lease.
15
(2C)
Where at any time the plant or machinery—
(a)
is not treated under subsection (2) as owned by the person,
but
(b)
would be treated under that subsection as owned by the
person, but for subsection (2B),
20

the plant or machinery is nevertheless to be treated under subsection
(2) as not owned by any other person at that time.”.
      (5)
Renumber subsection (5) as subsection (7).
      (6)
Before that subsection, as so renumbered, insert—
“(6)
If—
25
(a)
a person enters into two or more agreements, and
(b)
those agreements are such that, if they together constituted a
single contract, the condition in subsection (1)(b) would be
met in relation to that person and that contract,

the agreements are to be treated for the purposes of this section as
30
parts of a single contract.

In this subsection, any reference to an agreement includes a reference
to an undertaking, whether or not legally enforceable.”.
      (7)
At the end of the section insert—
“(8)
In this section “corresponding overseas activity” means an activity
35
that would be a qualifying activity if the person carrying it on were
resident in the United Kingdom.”.
      (8)
The amendments made by this paragraph have effect in relation to contracts
that are finalised (within the meaning of Part 4 of Schedule 8) on or after 1st
April 2006.
40
Phasing out of overseas leasing rules
13    (1)
Section 105 of CAA 2001 (basic terms: “leasing”, “overseas leasing” etc) is
amended as follows.

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
264

      (2)
After subsection (2) (“overseas leasing”) insert—
   “(2A)
In determining whether plant or machinery is used for overseas
leasing, no account shall be taken of any lease finalised, within the
meaning of Part 4 of Schedule 8 to the Finance Act 2006, on or after
1st April 2006.”.
5
Anti-avoidance: meaning of “finance lease”
14    (1)
Section 219 of CAA 2001 (meaning of “finance lease” in Chapter 17 of Part 2)
is amended as follows.
      (2)
In subsection (1)(b), after sub-paragraph (ii) insert—

“and which are not a long funding lease in the case of the lessor.”.
10
      (3)
Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the
amendment made by this paragraph.
Capital allowances: allocation of expenditure to a chargeable period
15    (1)
Section 220 of CAA 2001 is amended as follows.
      (2)
Before subsection (1) insert—
15
“(A1)
Subsection (1) applies to a company for a chargeable period if—
(a)
at the end of the ICTA period of account which is the basis
period for the chargeable period, the company is a member of
a group, and
(b)
the last day of that ICTA period of account is not also the last
20
day of an ICTA period of account of the principal company of
the group.”.
      (3)
In subsection (1)—
(a)
for “a person” substitute “the company”,
(b)
for “a chargeable period” substitute “the chargeable period”,
25
(c)
after “under a finance lease” insert “or under a qualifying operating
lease (see subsection (4))”, and
(d)
for “person’s”, in both places, substitute “company’s”.
      (4)
After subsection (2) insert—
“(3)
The following provisions have effect for the interpretation of this
30
section.
(4)
A “qualifying operating lease” is a plant or machinery lease that
meets the following conditions—
(a)
it is not a finance lease,
(b)
it is a funding lease,
35
(c)
its term is longer than 4 years but not longer than 5 years.
(5)
An ICTA period of account is the basis period for a chargeable period
if the chargeable period coincides with, or falls within, the ICTA
period of account.
(6)
An “ICTA period of account” is a period of account as defined in
40
section 832(1) of ICTA.

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
265

(7)
The provisions of section 170(3) to (6) of TCGA 1992 apply to
determine for the purposes of this section—
(a)
whether a company is member of a group, and
(b)
which company is the principal company of the group.
(8)
But, in applying those provisions for the purposes of this section, a
5
company (“the subsidiary company”) that does not have ordinary
share capital is to be treated as being a qualifying 75% subsidiary of
another company (“the parent company”) if the parent company—
(a)
has control of the subsidiary company, within the meaning of
section 840 of ICTA, and
10
(b)
is beneficially entitled to the appropriate proportion of
profits and assets.
(9)
The parent company is beneficially entitled to the appropriate
proportion of profits and assets if (and only if) it—
(a)
is beneficially entitled to at least 75% of any profits available
15
for distribution to equity holders of the subsidiary company,
and
(b)
would be beneficially entitled to at least 75% of any assets of
the subsidiary company available for distribution to its
equity holders on a winding-up.
20
(10)
The provisions of Schedule 18 to ICTA (equity holders and profits or
assets etc) also apply for the purposes of this section.
(11)
In this section, the following expressions have the same meaning as
in Chapter 6A of Part 2 (interpretation of provisions about long
funding leases)—
25
“funding lease”,
“plant or machinery lease”,
“term”, in relation to a lease.”.
      (5)
In consequence of the amendments made by this paragraph, the italic cross-
heading preceding section 219 becomes “Finance leases and certain
30
operating leases”.
      (6)
The amendments made by this paragraph have effect in relation to
expenditure incurred on or after 1st April 2006.