Sale of Lessors

1. Sale of Lessors Finance Act 2006 Sch 10 *Half of company’s capital equipment leased (not property companies); or Half of company’s income derives from leasing ‘Qualifying change of ownership’ 75% subsidiary (or control, where no share capital) 75% entitlement to distributable profits and capital on winding-up Anti-avoidance – ICTA Schedule 18 ‘relevant change in relationship’ between parent and subsidiary

2. Sale of Lessors • The charge • Subsidiary receives taxable income • Subsidiary’s accounting period ends • ‘basic amount’: BS value of equipment minus • TWDV: unrelieved capex in main, class and single asset pools • Relief of an equal amount at start of next accounting period

3. Long funding lease • Finance Act 2006 Schedule 8 • ‘Long funding lease’ • Not short • Not of ‘background’ equipment • Not more than 10% of value of ‘background’ equipment and 5% of land value • ‘Short’ • Under 5 years • Under 7 years if • Finance lease • Residual value less than 5% • Escalation limited to 10% between first and second year plus 10% between second and final year

4. Long funding lease • Funding lease: finance lease or minimum lease payments are more than 80% of fair value or term ismore than 65% of the useful economic life Not: hire purchase, conditional sale etc (CAA 2001 s 67) one of a series which in aggregate exceed 65% test old equipment previously leased for more than 10 years

5. Long funding lease • Equipment deemed to belong to lessee • Lessee deemed to have incurred capex at commencement • Operating lease: • Capex equals market value at later of commencement or bringing into use • Finance lease: • Capex equals present value of minimum lease payments plus unrelievable pre-commencement rentals (if any) - Unless a main purpose is to maximise CAs, when market value at commencement is substituted

6. Long funding lease • Disposals: • Termination of the lease is a disposal • Disposal value – operating lease • Excess of market value at commencement over the residual value plus • any amounts rebated to the lessee on termination • Disposal value – finance lease • Any amounts rebated to the lessee on termination plus • balance of minimum lease payments at termination (if early) minus • any amounts payable by the lessee to the lessor on termination

7. Long funding lease • Anti-avoidance • Section 70V - international leasing • Long funding lease or hire purchase cross-border into the UK • Non-long funding lease cross-border out of the UK • Sole or main purpose is obtaining a tax advantage • Lease out of UK deemed a long funding lease • So no capital allowances for intermediate lessor