House of Lords Amendments

House of Lords

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Finance Bill
Schedule 5 — Leased assets
82

212R
Apportionment of proceeds of disposal of relevant plant and
machinery
Any amount required to be brought into account in connection with
a disposal event in respect of any relevant plant and machinery is to
be apportioned between the new pool and the relevant pool
5
concerned on a just and reasonable basis.
212S
Transactions on relevant day
(1)
This section applies if any plant and machinery is transferred on the
relevant day and (apart from subsection (4)(c) of section 212K) the
transfer would have the effect of reducing RTWDV (as determined
10
in accordance with that section).
(2)
No person other than C or P is entitled to claim an allowance in
respect of the plant or machinery after the transfer.”
3
For the heading of Chapter 17 substitute “Other anti-avoidance”.
4
Section 247 (giving effect to allowances and charges: trades) is renumbered
15
as subsection (1) of that section; and after that subsection insert—
“(2)
See Chapter 16A for provision restricting in certain circumstances
the ways in which effect may be given to an allowance by virtue of
subsection (1)(a).”
5
The amendments made by this Schedule have effect where the relevant day
20
is on or after 21 July 2009.
6
But in relation to cases where the relevant day is before 9 December 2009 the
amendment made by paragraph 2 has effect—
(a)
with the omission of section 212C(2)(b),
(b)
as if in section 212K(1) “which is amount 1” were substituted for “and
25
is to be found by adding together amounts 1 and 2”,
(c)
with the omission of section 212K(3) and (4)(c),
(d)
with the omission from section 212O(5) of the words “or under
section 212Q(8)”,
(e)
with the omission of section 212Q, and
30
(f)
with the omission of section 212S.
Schedule 5
Leased assets
Restriction of qualifying expenditure
1     (1)
In Chapter 17 of Part 2 of CAA 2001 (plant and machinery: anti-avoidance),
35

Finance Bill
Schedule 5 — Leased assets
83

after section 228M insert—
“Restriction of qualifying expenditure in case of certain leased assets
228MA
Restriction of qualifying expenditure
(1)
This section applies where capital expenditure is incurred on the
provision of plant or machinery (“the asset”) and at the time the
5
expenditure is incurred—
(a)
the asset is leased or arrangements exist under which it is to
be leased, and
(b)
arrangements have been entered into in relation to payments
under the lease that have the effect of reducing the value of
10
the asset to the lessor (“V”).
(2)
For the purposes of capital allowances the lessor’s qualifying
expenditure on the asset is restricted to V.
(3)
The value of the asset to the lessor is given by—
V = VI + VR
15

where—
VI is the present value of the lessor’s income from the asset, and
VR is the present value of the residual value of the asset reduced
by the amount of any rental rebate.
(4)
For this purpose—
20
(a)
the lessor’s income from the asset is the total of all the
amounts that—
(i)
have been received by the lessor, or it is reasonable to
expect the lessor will receive, in connection with the
lease, and
25
(ii)
have been brought into account by the lessor, or it is
reasonable to expect the lessor will bring into account,
as income in computing profits chargeable to tax, and
(b)
the residual value of the asset is what it is reasonable to
expect will be the market value of the lessor’s interest in the
30
asset immediately after the termination of the lease.
(5)
In determining the lessor’s income from the asset, exclude—
(a)
disposal receipts brought, or to be brought, into account
under Part 2, and
(b)
so much of any amount as represents charges for services or
35
qualifying UK or foreign tax (within the meaning of section
70YE) to be paid by the lessor.
(6)
Where capital expenditure has previously been incurred by the
lessor on the provision of the asset, the reference in subsection (2) to
the lessor’s qualifying expenditure on the asset is to be read as a
40
reference to the total amount of the lessor’s qualifying expenditure
on the asset.
(7)
The following provisions supplement this section—
(a)
section 228MB provides for the calculation of “present
value”, and
45

Finance Bill
Schedule 5 — Leased assets
84

(b)
section 228MC defines what is meant by a rental rebate.
(8)
In this section and sections 228MB and 228MC “lease” includes any
arrangements which provide for plant or machinery to be leased or
otherwise made available by a person (“the lessor”) to another
person (“the lessee”).
5
228MB
Calculation of present value
(1)
For the purposes of section 228MA the “present value” of an amount
is to be calculated by using the interest rate implicit in the lease.
(2)
The general rule is that the interest rate implicit in the lease is the
interest rate that would apply in accordance with normal
10
commercial criteria, including, in particular, generally accepted
accounting practice (where applicable).
(3)
If the interest rate implicit in the lease cannot be determined in
accordance with subsection (2), it is taken to be 1% above LIBOR.
(4)
For this purpose—
15
(a)
LIBOR means the London interbank offered rate on the
relevant day for deposits for a term of 12 months in the
relevant currency,
(b)
the relevant day is the day on which the lease was entered
into (or if that was not a business day, the first business day
20
after that day), and
(c)
the relevant currency is the currency in which rentals under
the lease are payable.
228MC
Rental rebate
(1)
For the purposes of section 228MA “rental rebate” means any sum
25
payable to the lessee that is calculated by reference to the termination
value of the asset.
(2)
The general rule is that the termination value of an asset is the value
of the asset at or about the time when the lease terminates.
(3)
Calculation by reference to the termination value includes
30
calculation by reference to any one or more of—
(a)
the proceeds of sale, if the asset is sold,
(b)
any insurance proceeds, compensation or similar sums in
respect of the asset, and
(c)
an estimate of the market value of the asset.
35
(4)
Calculation by reference to the termination value also includes—
(a)
determination in a way which, or by reference to factors or
criteria which, might reasonably be expected to produce a
broadly similar result to calculation by reference to the
termination value, or
40
(b)
any other form of calculation indirectly by reference to the
termination value.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to capital
expenditure incurred on or after 9 December 2009.

Finance Bill
Schedule 5 — Leased assets
85

Restriction of deduction for rental rebate
2     (1)
In Chapter 4 of Part 2 of ITTOIA 2005 (trading income: rules restricting
deductions), after section 55A insert—
“Rental rebates
55B
Rental rebates
5
(1)
Where plant or machinery (“the asset”) is leased and a rental rebate
is payable by the lessor, the amount of the deduction allowable in
respect of the rebate is limited to—
(a)
the amount of the lessor’s income from the lease, or
(b)
in the case of a finance lease, that amount excluding the
10
finance charge.
(2)
“Rental rebate” means any sum payable to the lessee that is
calculated by reference to the termination value of the asset.
(3)
For this purpose—
(a)
the termination value of an asset is the value of the asset at or
15
about the time when the lease terminates,
(b)
calculation by reference to the termination value includes
calculation by reference to any one or more of—
(i)
the proceeds of sale, if the asset is sold,
(ii)
any insurance proceeds, compensation or similar
20
sums in respect of the asset,
(iii)
an estimate of the market value of the asset, and
(c)
calculation by reference to the termination value also
includes—
(i)
determination in a way which, or by reference to
25
factors or criteria which, might reasonably be
expected to produce a broadly similar result to
calculation by reference to the termination value, or
(ii)
any other form of calculation indirectly by reference
to the termination value.
30
(4)
For the purposes of this section—
(a)
the income of the lessor from the lease is the total of all the
amounts receivable in connection with the lease that have
been brought into account in calculating the lessor’s income
for income tax purposes, excluding—
35
(i)
disposal receipts brought into account under Part 2 of
CAA 2001 (see section 60(1) of that Act), and
(ii)
so much of any amount as represents charges for
services or qualifying UK or foreign tax (within the
meaning of section 70YE of that Act) to be paid by the
40
lessor, and
(b)
the finance charge, in relation to a finance lease, is—
(i)
if the lease is one that, under generally accepted
accounting practice, falls (or would fall) to be treated
as a loan, so much of the rentals under the lease as fall
45
(or would fall) to be treated as interest, or

Finance Bill
Schedule 5 — Leased assets
86

(ii)
in any other case, the amount that, in accordance with
generally accepted accounting practice, falls (or
would fall) to be treated as the gross return on
investment.
(5)
Where the asset is acquired by the lessor in a transaction in relation
5
to which an election is made under section 266 of CAA 2001 (election
where predecessor and successor are connected persons), this
section applies as if the successor had been the lessor at all material
times and everything done to or by the predecessor had been done to
or by the successor.
10
(6)
Where the whole or part of a rental rebate is disallowed under this
section as a deduction in computing profits—
(a)
the amount disallowed, or
(b)
if less, the amount by which the rental rebate exceeds the
amount of capital expenditure incurred by the lessor,
15

may be treated for the purposes of capital gains tax as an allowable
loss accruing to the lessor on the termination of the lease.

That allowable loss is deductible only from chargeable gains
accruing to the lessor on the disposal of the asset.
(7)
This section does not apply to a long funding finance lease (see
20
section 148C).”
      (2)
In Chapter 4 of Part 3 of CTA 2009 (trading income: rules restricting
deductions), after section 60 insert—
“60A
Rental rebates
(1)
Where plant or machinery (“the asset”) is leased and a rental rebate
25
is payable by the lessor, the amount of the deduction allowable in
respect of the rebate is limited to—
(a)
the amount of the lessor’s income from the lease, or
(b)
in the case of a finance lease, that amount excluding the
finance charge.
30
(2)
“Rental rebate” means any sum payable to the lessee that is
calculated by reference to the termination value of the asset.
(3)
For this purpose—
(a)
the termination value of an asset is the value of the asset at or
about the time when the lease terminates,
35
(b)
calculation by reference to the termination value includes
calculation by reference to any one or more of—
(i)
the proceeds of sale, if the asset is sold,
(ii)
any insurance proceeds, compensation or similar
sums in respect of the asset, and
40
(iii)
an estimate of the market value of the asset, and
(c)
calculation by reference to the termination value also
includes—
(i)
determination in a way which, or by reference to
factors or criteria which, might reasonably be
45
expected to produce a broadly similar result to
calculation by reference to the termination value, or

Finance Bill
Schedule 5 — Leased assets
87

(ii)
any other form of calculation indirectly by reference
to the termination value.
(4)
For the purposes of this section—
(a)
the income of the lessor from the lease is the total of all the
amounts receivable in connection with the lease that have
5
been brought into account in calculating the lessor’s income
for corporation tax purposes, excluding—
(i)
disposal receipts brought into account under Part 2 of
CAA 2001 (see section 60(1) of that Act), and
(ii)
so much of any amount as represents charges for
10
services or qualifying UK or foreign tax (within the
meaning of section 70YE of that Act) to be paid by the
lessor, and
(b)
the finance charge, in relation to a finance lease, is—
(i)
if the lease is one that, under generally accepted
15
accounting practice, falls (or would fall) to be treated
as a loan, so much of the rentals under the lease as fall
(or would fall) to be treated as interest, or
(ii)
in any other case, the amount that, in accordance with
generally accepted accounting practice, falls (or
20
would fall) to be treated as the gross return on
investment.
(5)
Where the asset is acquired by the lessor in a transaction—
(a)
to which section 948 of CTA 2010 applies (modified
application of CAA 2001 in case of transfer of trade without
25
change of ownership), or
(b)
in relation to which an election is made under section 266 of
CAA 2001 (election where predecessor and successor are
connected persons),

this section applies as if the successor had been the lessor at all
30
material times and everything done to or by the predecessor had
been done to or by the successor.
(6)
Where the whole or part of a rental rebate is disallowed under this
section as a deduction in computing profits—
(a)
the amount disallowed, or
35
(b)
if less, the amount by which the rental rebate exceeds the
amount of capital expenditure incurred by the lessor,

may be treated for the purposes of corporation tax in respect of
chargeable gains as an allowable loss accruing to the lessor on the
termination of the lease.
40

That allowable loss is deductible only from chargeable gains
accruing to the lessor on the disposal of the asset.
(7)
This section does not apply to a long funding finance lease (see
section 362 of CTA 2010).”
      (3)
The amendments made by this paragraph have effect in relation to rental
45
rebates payable on or after 9 December 2009.
Arrangements reducing disposal value of asset
3     (1)
In Chapter 5 of Part 2 of CAA 2001 (plant and machinery: general provisions

Finance Bill
Schedule 6 — Charities and community amateur sports clubs: definitions
Part 1 — Definition of “charity”, “charitable company” and “charitable trust”
88

about charges and allowances), after section 64 insert—
“64A
Leased assets: arrangements reducing disposal value of asset
(1)
Where—
(a)
plant or machinery (“the asset”) is subject to a lease,
(b)
a disposal event occurs with the result that a disposal value
5
in respect of the asset is to be brought into account under Item
1, 2 or 7 of the Table in section 61(2), and
(c)
arrangements have been entered into that have the effect of
reducing the disposal value of the asset in so far as it is
attributable to rentals payable under the lease,
10

the disposal value is to be determined as if the arrangements had not
been entered into.
(2)
Subsection (1) does not apply if—
(a)
the arrangements take the form of a transfer of relevant
receipts within section 809AZA of ITA 2007 and the relevant
15
amount has been treated as income under section 809AZB of
that Act, or
(b)
the arrangements take the form of a transfer of relevant
receipts within section 752 of CTA 2010 and the relevant
amount has been treated as income under section 753 of that
20
Act.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to disposal
events taking place on or after 9 December 2009.
Schedule 6
Section 30

Charities and community amateur sports clubs: definitions
25
Part 1
Definition of “charity”, “charitable company” and “charitable trust”
Definition of “charity” etc
1     (1)
For the purposes of the enactments to which this Part applies “charity”
means a body of persons or trust that—
30
(a)
is established for charitable purposes only,
(b)
meets the jurisdiction condition (see paragraph 2),
(c)
meets the registration condition (see paragraph 3), and
(d)
meets the management condition (see paragraph 4).
      (2)
For the purposes of the enactments to which this Part applies—
35
“charitable company” means a charity that is a body of persons;
“charitable trust” means a charity that is a trust.
      (3)
Sub-paragraphs (1) and (2) are subject to any express provision to the
contrary.



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