Finance Act 2024

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Taxation of leases

44. The Principal Act is amended—

(a) in section 288—

(i) in subsection (1A):

(I) by the substitution of “Notwithstanding the generality of subsection (1),” for “Notwithstanding subsection (1) and subject to this section,”,

(II) in paragraph (a), by the substitution of “notwithstanding the fact that but for section 299(1)” for “notwithstanding the fact that”, and

(III) in paragraph (b), by the substitution of “a lease of machinery or plant on the terms described in section 299(1) notwithstanding the fact that but for section 299(1)” for “a relevant lease (within the meaning of section 299) in respect of which a valid election or claim under section 299 was made, notwithstanding the fact that”,

(ii) in subsection (3), by the substitution of “Subject to subsection (6B), where the sale, insurance, salvage or compensation moneys” for “Where the sale, insurance, salvage or compensation moneys”,

(iii) in subsection (6B), by the substitution of “subsections (2) and (3)” for “subsection (2)” in each place where it occurs, and

(iv) by the insertion of the following subsection after subsection (6B):

“(6C) Where a lease on the terms referred to in paragraph (a) of subsection (1A) is entered into before the machinery or plant to which that lease refers is made available to the lessee, subsection (1A) shall apply as if the requirement in that subsection for the machinery or plant, but for section 299(1), to belong to the lessor prior to entering into a lease of machinery or plant was a requirement for the machinery or plant, but for section 299(1), to belong to the lessor prior to the date the machinery or plant is made available to the lessee unless it is reasonable to consider that the date the lease was entered into and the date the machinery or plant was made available to the lessee are not the same date—

(a) for reasons other than bona fide commercial reasons, and

(b) as part of an arrangement under which a tax advantage (within the meaning of section 299(5A)) arises and—

(i) the tax advantage is priced into the terms of the arrangement, or

(ii) the arrangement was designed to give rise to a tax advantage.”,

(b) in section 299—

(i) in subsection (5)—

(I) by the substitution of “Subject to subsection (5A), subsection (4)” for “Subsection (4)”,

(II) by the substitution of the following paragraph for paragraph (c):

“(c) the lessor acquired the leased asset by way of—

(i) a bargain made at arm’s length, or

(ii) a transfer in respect of which a valid election under section 312(5) was made, subject to the person who made the transfer of the asset to the lessor having acquired the asset by way of a bargain made at arm’s length,”,

(III) in paragraph (e), by the substitution of “bargain made at arm’s length, and” for “bargain made at arm’s length”, and

(IV) by the deletion of paragraphs (f) and (g),

(ii) by the insertion of the following subsections after subsection (5):

“(5A) (a) (i) Subject to paragraph (b), where a relevant lease is an associated relevant lease, subsection (4) shall only apply to a lessor in respect of the associated relevant lease where—

(I) the requirements set out in paragraphs (a) to (h) of subsection (5) have been satisfied, and

(II) subparagraph (ii) does not apply.

(ii) Subject to subparagraphs (iii) and (iv), this subparagraph applies where at the date of commencement of the associated relevant lease—

(I) the lessee is entitled, in computing the profits or gains on which tax falls finally to be borne for the purposes of foreign tax, to—

(A) a relief in respect of the value of the machinery and plant which corresponds to allowances available under Part 9, and

(B) any other deduction, allowance or relief in respect of the lease payments,

and

(II) it is reasonable to consider that the aggregate amount of the deductions referred to in subclause (B) of clause (I), over the associated relevant lease term, materially exceeds an amount which corresponds to the amount by which the aggregate of the lease payments over the lease term exceeds the aggregate of the deductions referred to in subclause (A) of clause (I) over the associated relevant lease term.

(iii) Where the machinery or plant that is the subject of an associated relevant lease to which subparagraph (ii) applies is let by the lessee by way of a lease (referred to in this subparagraph as ‘the sub-lease’) to an associated enterprise (in this subparagraph referred to as ‘the sub-lessee’), subparagraph (ii) shall apply as if the references in that subparagraph—

(I) to the lessee were references to both the lessee and the sub lessee, and

(II) to the relevant lease were references to both the associated relevant lease and the sub-lease.

(iv) If the terms of the lease are amended during the lease term, subparagraph (ii) shall apply as if the reference in that subparagraph to the date of commencement of the associated relevant lease included a reference to the effective date of the change of those terms.

(b) Subsection (4) shall not apply to a lessor in respect of a relevant lease, where it is reasonable to consider that the relevant lease—

(i) has not been entered into for bona fide commercial reasons, and

(ii) is part of an arrangement under which a tax advantage arises and—

(I) the tax advantage is priced into the terms of the arrangement, or

(II) the arrangement was designed to give rise to a tax advantage.

(c) For the purposes of this subsection—

‘associated enterprise’ means an enterprise that would be associated for the purposes of Chapter 4 of Part 35C;

‘associated relevant lease’ means a relevant lease in respect of which the lessee is an associated enterprise of the lessor;

‘foreign tax’ has the meaning assigned to it in section 835Z(1);

‘tax advantage’, in respect of an arrangement, means where in computing the profits or gains on which tax or foreign tax falls finally to be borne, over the lease term, the aggregate of the amounts of relief, deduction or allowance available, directly or indirectly, in respect of the lease payments or the value of the leased machinery or plant to the lessee or any other party to the arrangement, materially exceeds an amount which corresponds to the total lease payments.

(5B) Where a relevant lease of machinery or plant is entered into before the machinery or plant to which the relevant lease refers is made available to the lessee, this section shall apply as if the reference in subsection (5)(a) to the period immediately prior to the lessor entering into the relevant lease of machinery or plant was a reference to the date the machinery or plant is made available to the lessee.”,

(iii) by the deletion of subsection (6), and

(iv) in subsection (8)—

(I) by the substitution of “Where this section applies to a lessee,” for “In making a claim under subsection (6)(b)(ii)”,

(II) in paragraph (h), by the substitution of “return is made.” for “return is made;”, and

(III) by the deletion of paragraph (i),

(c) in section 403—

(i) in subsection (1)(d)(ii)(IIA), by the substitution of the following subclause for subclause (B):

“(B) the moneys provided to the intermediate financing company are moneys which have been borrowed from persons who are not connected with any member of the leasing business group;”,

(ii) in subsection (5), by the substitution of the following paragraph for paragraph (a):

“(a) Section 305(1)(b) shall not apply in relation to capital allowances.”,

and

(iii) by the deletion of subsections (5A) to (10),

(d) in section 404—

(i) in subsection (1)—

(I) in paragraph (a), by the insertion of the following definition:

“ ‘even lease’ means a lease where, for the purpose of computing a company’s income from the lease—

(a) subject to paragraph (b), the total lease payments receivable in respect of that lease are treated as receipts arising evenly over the lease term, and

(b) where an event referred to in paragraph (a) or (b), as the case may be, of section 76D(4) occurs, the lease payments are recalculated in a manner consistent with that provided for in paragraph (a) or (b), as the case may be, of section 76D(4);”,

and

(II) in paragraph (b)—

(A) in subparagraph (iv), by the substitution of “accounting periods,” for “accounting periods, and”,

(B) in subparagraph (v), by the substitution of “the lease shall not be treated as a relevant lease, and” for “the lease shall not be treated as a relevant lease.”, and

(C) by the insertion of the following subparagraph after subparagraph (v):

“(vi) a lease shall not be a relevant lease where it is an even lease.”,

(ii) in subsection (2)—

(I) in paragraph (a)—

(A) by the substitution of “Subject to subsection (2B),” for “Subject to subsection (2A),”, and

(B) by the substitution of “subsection (2A)” for “subsections (5) to (9)”,

and

(II) by the insertion of the following paragraph after paragraph (b):

“(c) In determining the amount of specified capital allowances from a relevant lease that are available for relief for the purposes of section 308(1), income from a relevant lease is to be treated as if it were a separate specified class of income.”,

(iii) by the deletion of subsection (2A),

(iv) by the insertion of the following subsection before subsection (3):

“(2B) Where a company has more than one specified leasing trade, such trades shall be aggregated to form a single specified trade of leasing (in this subsection referred to as a ‘balloon leasing trade’) and where in an accounting period that balloon leasing trade incurs a relevant leasing loss (within the meaning of section 403), the relevant amount of that loss shall not be available for relief under—

(a) section 396A(3), except to the extent that the amount can be used to reduce the income of the balloon leasing trade of the company, or

(b) section 396B, 420A or 420B, as the case may be.”,

and

(v) by the insertion of the following subsection after subsection (6):

“(7) A company, the capital allowances of which are subject to the restrictions in this section, shall provide the following information where it is required by the return required under Part 41A:

(a) details of the affected capital allowances claimed in the period to which the return relates including—

(i) the amounts claimed, both in the course of a trade and otherwise than in the course of a trade, and

(ii) where an event referred to in section 288 occurs, in relation to an asset on which affected capital allowances are made, in that period, details relating to that event including the amount of any balancing allowance or charge made on the asset;

(b) the amount of any relevant leasing loss, within the meaning of section 403(4), arising from a relevant lease available for set off at the commencement of the period to which the return relates;

(c) details of any claims of relevant leasing losses, within the meaning of section 403(4), made for set off in the period to which the return relates under section 396(1) or 396A;

(d) details of those leases which are relevant leases by virtue of subsection (5) only;

(e) where, in the period to which the return relates, a company disposes of machinery or plant in respect of which specified capital allowances were claimed, details—

(i) in respect of any chargeable gain or capital loss arising, or

(ii) in relation to the appropriation of that asset into trading stock under section 596.”,

(e) in section 485C, by the deletion of subsection (1B), and

(f) in Schedule 25B, by the deletion of the entries at Reference Numbers 15C and 15D and the matters set opposite those reference numbers.