Corporation Tax Bill

House of Commons

Session 2009 - 10
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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.
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(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
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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
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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
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(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
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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.
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(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—
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(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
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(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.
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(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
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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
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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—
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(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).
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(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—
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(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
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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
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(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).
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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
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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,
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(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
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(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
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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
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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
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(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)—
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(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)—
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(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.
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