House of Commons portcullis
House of Commons
Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill


Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 2 — New lease of land after assignment or surrender

425

 

Lease varied to provide for increased rent

859     

Lease varied to provide for increased rent

(1)   

This section applies if each of conditions A to D is met.

(2)   

Condition A is that—

(a)   

a company (“the lessee”) is a lessee of land under a lease which has 50

5

years or less to run (“the original lease”), and

(b)   

the lessee is entitled in respect of the rent under the original lease to a

deduction by way of relevant corporation tax relief.

(3)   

Condition B is that (by agreement with the landlord) the lessee varies the

original lease.

10

(4)   

Condition C is that under the variation—

(a)   

the lessee agrees to pay a rent greater than that payable under the

original lease, and

(b)   

the lessee agrees to pay the greater rent in return for a consideration

which would not (apart from this Chapter) be taxable except as capital

15

in the lessee’s hands.

(5)   

Condition D is that under the variation the period during which the greater

rent is to be paid ends 15 years or less after the date on which—

(a)   

the consideration is paid to the lessee, or

(b)   

the last instalment of the consideration is paid to the lessee (if it is paid

20

in instalments).

(6)   

If this section applies the lessee must be treated for the purposes of this

Chapter—

(a)   

as having surrendered the original lease for the consideration

mentioned in subsection (4)(b), and

25

(b)   

as having been granted a new lease for a term of 15 years or less but

otherwise on the terms of the original lease varied as mentioned in

subsection (3).

Interpretation

860     

Relevant corporation tax relief

30

For the purposes of this Chapter each of the following is a deduction by way of

relevant corporation tax relief—

(a)   

a deduction in calculating profits or losses of a trade for corporation tax

purposes,

(b)   

a deduction in calculating the profits of a UK property business for

35

corporation tax purposes,

(c)   

a deduction in calculating any loss for which relief is given under

section 91 (losses from miscellaneous transactions), or in calculating

profits or gains chargeable to corporation tax under or by virtue of any

provision to which section 1173 (miscellaneous charges) applies,

40

(d)   

a deduction under section 76 of ICTA (insurance companies), and

(e)   

a deduction under section 1219 of CTA 2009 (expenses of management

of a company’s investment business).

 
 

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 3 — Leased trading assets

426

 

861     

Linked persons

(1)   

In this Chapter references to a person linked to L are to a person who is—

(a)   

a partner of L,

(b)   

an associate of L, or

(c)   

an associate of a partner of L.

5

(2)   

“Associate” must be read in accordance with section 882 (relatives, settlements,

persons controlling bodies, joint owners etc).

862     

Lease, lessee, lessor and rent

(1)   

This section applies for the purposes of this Chapter.

(2)   

“Lease” includes—

10

(a)   

an agreement for a lease, and

(b)   

any tenancy.

(3)   

“Lease” does not include a mortgage.

(4)   

A reference to a lessee or lessor—

(a)   

is to be read in accordance with subsections (2) and (3), and

15

(b)   

includes a reference to the successors in title of a lessee or lessor.

(5)   

“Rent” includes a payment by a tenant for work to maintain or repair leased

premises which the lease does not require the tenant to carry out; and

“premises” here includes land.

Chapter 3

20

Leased trading assets

Introduction

863     

Overview of Chapter

This Chapter provides that, in certain circumstances where a payment is made

under a lease of a trading asset, corporation tax relief for the payment is

25

restricted.

Application of the Chapter

864     

Leased trading assets

(1)   

Section 865 has effect if—

(a)   

condition A is met, and

30

(b)   

condition B or C is met.

(2)   

Condition A is that—

(a)   

a payment is made by a company under a lease of a relevant asset, and

(b)   

a deduction is allowed for the payment in calculating the profits of a

trade for corporation tax purposes.

35

(3)   

Condition B is that—

 
 

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 3 — Leased trading assets

427

 

(a)   

at a time before the lease’s creation the asset was used for the purposes

of the trade, and

(b)   

when it was so used it was owned by the person then carrying on the

trade.

(4)   

Condition C is that—

5

(a)   

at a time before the lease’s creation the asset was used for the purposes

of another trade, or for the purposes of a profession or vocation,

(b)   

when it was so used it was owned by the person then carrying on the

other trade, or the profession or vocation, and

(c)   

when it was so used, or later, that person was carrying on the trade

10

mentioned in subsection (2).

(5)   

The reference in subsection (2)(a) to a lease does not include a lease created on

or before 14 April 1964.

(6)   

In this section references to a person carrying on a trade, profession or vocation

are to the person carrying on the trade, profession or vocation for the time

15

being.

Relief: restriction and carrying forward

865     

Tax deduction not to exceed commercial rent

(1)   

The rules in subsection (3) apply to the calculation of the deduction by way of

relevant corporation tax relief allowed in an accounting period—

20

(a)   

for the non-excluded element of the payment within section 864(2), or

(b)   

if there are two or more such payments, for the non-excluded elements

of those payments.

(2)   

For the purposes of this section the non-excluded element of a payment is the

element not excluded under section 866 (long funding finance leases).

25

(3)   

The rules are—

   

Rule 1 meaning of amount E

   

For any accounting period, amount E (which may be nil) is the expense or total

expenses to be brought, in accordance with generally accepted accounting

practice, into account in the period in respect of—

30

(a)   

the non-excluded element of the payment, or

(b)   

the non-excluded elements of the payments.

   

Rule 2 calculation of amount E

   

For every accounting period—

(a)   

calculate the total of amount E for the period and amount E for every

35

preceding accounting period ending on or after the date of the creation

of the lease mentioned in section 864(2)(a),

(b)   

calculate the total of the deductions by way of relevant corporation tax

relief for every previous accounting period ending on or after that date,

and

40

(c)   

subtract the total at (b) from the total at (a) to give the cumulative

unrelieved expenses for the period.

   

Rule 3 meaning of post-spread period

   

An accounting period is a post-spread period if for that accounting period, and

every later accounting period, there are no payments within section 864(2).

45

 
 

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 3 — Leased trading assets

428

 

   

Rule 4 the deduction allowed in an accounting period

   

If an accounting period is not a post-spread period, the deduction allowed for

the period is equal to the cumulative unrelieved expenses for the period, but is

the commercial rent for the period if that is less (see section 867).

   

Rule 5 accounting periods in which no deduction allowed

5

   

If an accounting period is a post-spread period, no deduction is allowed for the

period.

866     

Long funding finance leases

(1)   

This section applies for the purposes of section 865.

(2)   

A payment must be excluded so far as, in the case of the lessee, it is to be

10

regarded in accordance with Chapter 6A of Part 2 of CAA 2001 as a payment

under a lease which is a long funding finance lease for the purposes of that

Part.

867     

Commercial rent

(1)   

Subsection (3) applies for the purpose of making a comparison under rule 4 of

15

section 865(3).

(2)   

In this section “the actual lease” means the lease mentioned in section 864(2)(a).

(3)   

The commercial rent is the rent which might at the relevant time be expected

to be paid under a lease of the asset if—

(a)   

the lease were for the rest of the asset’s expected normal working life,

20

(b)   

the rent were payable at uniform intervals and at a uniform rate, and

(c)   

the rent gave a reasonable return for the asset’s market value at the

relevant time, taking account of the actual lease’s terms and conditions.

(4)   

The relevant time is the time when the actual lease was created.

(5)   

An asset’s expected normal working life is the period which might be

25

expected, when it is first put into use, to pass before it is finally put out of use

as being unfit for further use.

(6)   

In applying subsection (5) it must be assumed that the asset will be used in the

normal way, and to the normal extent, throughout the period.

(7)   

If the asset is used at the same time partly for the purposes of the trade

30

mentioned in section 864(2)(b) and partly for other purposes, the commercial

rent as defined in subsection (3) is to be determined by reference to what would

be paid for such partial use.

Interpretation

868     

Lease

35

(1)   

This section applies for the purposes of this Chapter.

(2)   

A lease is (in relation to an asset) an agreement or arrangement under which

payments are made for the use of or otherwise in respect of the asset.

 
 

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums

429

 

(3)   

In particular it includes an agreement or arrangement under which the

payments (or any of them) represent instalments of a purchase price or

payments towards it.

869     

Relevant asset

For the purposes of this Chapter a relevant asset is any description of property

5

or rights other than land or an interest in land.

Chapter 4

Leased assets: capital sums

Introduction

870     

Overview of Chapter

10

This Chapter provides that in certain circumstances where a payment is made

under a lease of an asset, and a capital sum is obtained in respect of an interest

in the asset, corporation tax is charged on an amount not greater than the

capital sum.

Application of the Chapter

15

871     

Application of the Chapter

This Chapter applies if—

(a)   

condition A is met (see section 872), and

(b)   

condition B, C, D or E is met (see section 873).

872     

Payment under lease

20

(1)   

Condition A is that—

(a)   

a payment is made under a lease of a relevant asset, and

(b)   

the payment is one for which a deduction by way of relevant tax relief

is allowed.

(2)   

Condition A is not met if section 865 (leased trading assets: tax deductions)—

25

(a)   

applies to the payment, or

(b)   

would apply to it but for its being excluded under section 866 (long

funding finance leases).

(3)   

Condition A is not met if section 681CC of ITA 2007 (provision for income tax

corresponding to section 865)—

30

(a)   

applies to the payment, or

(b)   

would apply to it but for its being excluded under section 681CD of that

Act (long funding finance leases).

(4)   

The reference in subsection (1)(a) to a lease does not include a lease created on

or before 14 April 1964.

35

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2010
Revised 28 January 2010