Commentary

B5.415A Leases—anti-avoidance: capital receipts to be treated as income

Business tax
Business tax | Commentary

B5.415A Leases—anti-avoidance: capital receipts to be treated as income

Business tax | Commentary

Leases—other anti-avoidance provisions

B5.415A Leases—anti-avoidance: capital receipts to be treated as income

Anti-avoidance provisions apply to counter premium lease schemes where agreements for finance leases of plant and machinery were being entered into for significant capital sums (often up to 90% of the market value of the leased assets) with the leases themselves carrying only low annual rentals. The intention behind such schemes was that although the economic result achieved was broadly equivalent to that of a sale, no capital allowances balancing charge would arise (either because the lease was not a long funding lease and no disposal event was triggered or because although the lease was a long funding lease, the grant of which would constitute a disposal event, the premium payable under the agreement for the lease would not be treated as forming part of the lessor's net investment in the lease which forms the basis for the balancing charge) and no chargeable gain would arise because although there would be a part disposal of the leased assets, the disposal proceeds would not exceed the lessor's tax basis attributable to the part being disposed of. Although the capital sums could be seen as being economically equivalent to prepaid rentals, they would not be taxed as such provided they really were capital in

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