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HMRC have taken legal steps to clampdown on plant and machinery sale-and-leaseback transactions designed to avoid tax.
The Revenue said it recently became aware of leasebacks that purported to create substantial capital allowances on assets that previously entitled the owner to no allowances.
Legislation is set to be introduced in Finance Bill 2015, with effect from 26 February 2015, to ensure an entitlement to capital allowances cannot be created by leaseback or connected party transaction when an asset is acquired without incurring expenditure.
HMRC have taken legal steps to clampdown on plant and machinery sale-and-leaseback transactions designed to avoid tax.
The Revenue said it recently became aware of leasebacks that purported to create substantial capital allowances on assets that previously entitled the owner to no allowances.
Legislation is set to be introduced in Finance Bill 2015, with effect from 26 February 2015, to ensure an entitlement to capital allowances cannot be created by leaseback or connected party transaction when an asset is acquired without incurring expenditure.
The measure applies to:
- long-funding leasebacks, where the lease is entered into on or after 26 February;
- connected party transactions in which the sale, hire purchase or assignment takes place on or after 26 February; and
- transfer and subsequent hire purchases where the contract is entered into on or after 26 February.
The new restriction will not affect a party disposing of an asset who is deemed to have incurred expenditure for the purpose of plant and machinery allowances, such as where an asset is gifted. It will apply in cases in which disposing person is deemed to have no expenditure.
Capital Allowances Act 2001, s 70DA, s 218, s 229A and s 242 will be amended to include the rules.
