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Lease varied to provide for increased rent |
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859 | Lease varied to provide for increased rent |
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(1) | This section applies if each of conditions A to D is met. |
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(a) | a company (“the lessee”) is a lessee of land under a lease which has 50 |
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years or less to run (“the original lease”), and |
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(b) | the lessee is entitled in respect of the rent under the original lease to a |
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deduction by way of relevant corporation tax relief. |
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(3) | Condition B is that (by agreement with the landlord) the lessee varies the |
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(4) | Condition C is that under the variation— |
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(a) | the lessee agrees to pay a rent greater than that payable under the |
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(b) | the lessee agrees to pay the greater rent in return for a consideration |
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which would not (apart from this Chapter) be taxable except as capital |
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(5) | Condition D is that under the variation the period during which the greater |
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rent is to be paid ends 15 years or less after the date on which— |
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(a) | the consideration is paid to the lessee, or |
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(b) | the last instalment of the consideration is paid to the lessee (if it is paid |
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(6) | If this section applies the lessee must be treated for the purposes of this |
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(a) | as having surrendered the original lease for the consideration |
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mentioned in subsection (4)(b), and |
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(b) | as having been granted a new lease for a term of 15 years or less but |
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otherwise on the terms of the original lease varied as mentioned in |
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860 | Relevant corporation tax relief |
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For the purposes of this Chapter each of the following is a deduction by way of |
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relevant corporation tax relief— |
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(a) | a deduction in calculating profits or losses of a trade for corporation tax |
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(b) | a deduction in calculating the profits of a UK property business for |
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corporation tax purposes, |
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(c) | a deduction in calculating any loss for which relief is given under |
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section 91 (losses from miscellaneous transactions), or in calculating |
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profits or gains chargeable to corporation tax under or by virtue of any |
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provision to which section 1173 (miscellaneous charges) applies, |
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(d) | a deduction under section 76 of ICTA (insurance companies), and |
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(e) | a deduction under section 1219 of CTA 2009 (expenses of management |
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of a company’s investment business). |
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(1) | In this Chapter references to a person linked to L are to a person who is— |
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(b) | an associate of L, or |
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(c) | an associate of a partner of L. |
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(2) | “Associate” must be read in accordance with section 882 (relatives, settlements, |
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persons controlling bodies, joint owners etc). |
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862 | Lease, lessee, lessor and rent |
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(1) | This section applies for the purposes of this Chapter. |
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(a) | an agreement for a lease, and |
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(3) | “Lease” does not include a mortgage. |
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(4) | A reference to a lessee or lessor— |
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(a) | is to be read in accordance with subsections (2) and (3), and |
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(b) | includes a reference to the successors in title of a lessee or lessor. |
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(5) | “Rent” includes a payment by a tenant for work to maintain or repair leased |
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premises which the lease does not require the tenant to carry out; and |
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“premises” here includes land. |
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This Chapter provides that, in certain circumstances where a payment is made |
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under a lease of a trading asset, corporation tax relief for the payment is |
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Application of the Chapter |
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864 | Leased trading assets |
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(1) | Section 865 has effect if— |
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(a) | condition A is met, and |
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(b) | condition B or C is met. |
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(a) | a payment is made by a company under a lease of a relevant asset, and |
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(b) | a deduction is allowed for the payment in calculating the profits of a |
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trade for corporation tax purposes. |
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(a) | at a time before the lease’s creation the asset was used for the purposes |
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(b) | when it was so used it was owned by the person then carrying on the |
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(a) | at a time before the lease’s creation the asset was used for the purposes |
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of another trade, or for the purposes of a profession or vocation, |
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(b) | when it was so used it was owned by the person then carrying on the |
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other trade, or the profession or vocation, and |
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(c) | when it was so used, or later, that person was carrying on the trade |
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mentioned in subsection (2). |
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(5) | The reference in subsection (2)(a) to a lease does not include a lease created on |
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(6) | In this section references to a person carrying on a trade, profession or vocation |
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are to the person carrying on the trade, profession or vocation for the time |
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Relief: restriction and carrying forward |
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865 | Tax deduction not to exceed commercial rent |
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(1) | The rules in subsection (3) apply to the calculation of the deduction by way of |
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relevant corporation tax relief allowed in an accounting period— |
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(a) | for the non-excluded element of the payment within section 864(2), or |
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(b) | if there are two or more such payments, for the non-excluded elements |
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(2) | For the purposes of this section the non-excluded element of a payment is the |
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element not excluded under section 866 (long funding finance leases). |
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| Rule 1 — meaning of amount E |
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| For any accounting period, amount E (which may be nil) is the expense or total |
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expenses to be brought, in accordance with generally accepted accounting |
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practice, into account in the period in respect of— |
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(a) | the non-excluded element of the payment, or |
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(b) | the non-excluded elements of the payments. |
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| Rule 2 — calculation of amount E |
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| For every accounting period— |
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(a) | calculate the total of amount E for the period and amount E for every |
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preceding accounting period ending on or after the date of the creation |
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of the lease mentioned in section 864(2)(a), |
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(b) | calculate the total of the deductions by way of relevant corporation tax |
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relief for every previous accounting period ending on or after that date, |
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(c) | subtract the total at (b) from the total at (a) to give the cumulative |
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unrelieved expenses for the period. |
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| Rule 3 — meaning of post-spread period |
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| An accounting period is a post-spread period if for that accounting period, and |
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every later accounting period, there are no payments within section 864(2). |
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| Rule 4 — the deduction allowed in an accounting period |
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| If an accounting period is not a post-spread period, the deduction allowed for |
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the period is equal to the cumulative unrelieved expenses for the period, but is |
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the commercial rent for the period if that is less (see section 867). |
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| Rule 5 — accounting periods in which no deduction allowed |
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| If an accounting period is a post-spread period, no deduction is allowed for the |
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866 | Long funding finance leases |
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(1) | This section applies for the purposes of section 865. |
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(2) | A payment must be excluded so far as, in the case of the lessee, it is to be |
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regarded in accordance with Chapter 6A of Part 2 of CAA 2001 as a payment |
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under a lease which is a long funding finance lease for the purposes of that |
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(1) | Subsection (3) applies for the purpose of making a comparison under rule 4 of |
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(2) | In this section “the actual lease” means the lease mentioned in section 864(2)(a). |
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(3) | The commercial rent is the rent which might at the relevant time be expected |
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to be paid under a lease of the asset if— |
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(a) | the lease were for the rest of the asset’s expected normal working life, |
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(b) | the rent were payable at uniform intervals and at a uniform rate, and |
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(c) | the rent gave a reasonable return for the asset’s market value at the |
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relevant time, taking account of the actual lease’s terms and conditions. |
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(4) | The relevant time is the time when the actual lease was created. |
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(5) | An asset’s expected normal working life is the period which might be |
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expected, when it is first put into use, to pass before it is finally put out of use |
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as being unfit for further use. |
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(6) | In applying subsection (5) it must be assumed that the asset will be used in the |
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normal way, and to the normal extent, throughout the period. |
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(7) | If the asset is used at the same time partly for the purposes of the trade |
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mentioned in section 864(2)(b) and partly for other purposes, the commercial |
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rent as defined in subsection (3) is to be determined by reference to what would |
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be paid for such partial use. |
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(1) | This section applies for the purposes of this Chapter. |
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(2) | A lease is (in relation to an asset) an agreement or arrangement under which |
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payments are made for the use of or otherwise in respect of the asset. |
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(3) | In particular it includes an agreement or arrangement under which the |
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payments (or any of them) represent instalments of a purchase price or |
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For the purposes of this Chapter a relevant asset is any description of property |
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or rights other than land or an interest in land. |
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Leased assets: capital sums |
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This Chapter provides that in certain circumstances where a payment is made |
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under a lease of an asset, and a capital sum is obtained in respect of an interest |
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in the asset, corporation tax is charged on an amount not greater than the |
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Application of the Chapter |
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871 | Application of the Chapter |
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(a) | condition A is met (see section 872), and |
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(b) | condition B, C, D or E is met (see section 873). |
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(a) | a payment is made under a lease of a relevant asset, and |
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(b) | the payment is one for which a deduction by way of relevant tax relief |
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(2) | Condition A is not met if section 865 (leased trading assets: tax deductions)— |
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(a) | applies to the payment, or |
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(b) | would apply to it but for its being excluded under section 866 (long |
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(3) | Condition A is not met if section 681CC of ITA 2007 (provision for income tax |
| |
corresponding to section 865)— |
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(a) | applies to the payment, or |
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(b) | would apply to it but for its being excluded under section 681CD of that |
| |
Act (long funding finance leases). |
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(4) | The reference in subsection (1)(a) to a lease does not include a lease created on |
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