What does section 70DA of the Capital Allowances Act 2001 do?

Section 70DA restricts capital allowances for a lessee in a sale-and-leaseback arrangement involving a long funding lease. It prevents the lessee from claiming annual investment allowances or first-year allowances and caps the qualifying expenditure available for writing down allowances by reference to a disposal value or market value threshold.

Can a lessee claim annual investment allowance or first-year allowance under a transfer and long funding leaseback?

No. Under section 70DA, neither the annual investment allowance nor any first-year allowance may be claimed by the transferor (S) or a person connected with S on expenditure incurred under the long funding leaseback. This prevents the lessee from obtaining accelerated tax relief on an asset they previously owned and transferred away.

How is the cap amount (D) determined for writing down allowance purposes under section 70DA?

If the transferor brought a disposal value into account on the transfer, D equals that disposal value. If no disposal value was required and no capital or qualifying revenue expenditure was originally incurred, D is nil. Otherwise, D is the smallest of the market value, the transferor's original capital expenditure, or a connected person's capital expenditure on the asset.

What is a linked person for the purposes of section 70DA?

A linked person is someone who owned the plant or machinery at any time before the transfer to the buyer and who was connected with the transferor (S) at some point between becoming the owner and the date of the transfer. This definition determines whether the nil cap amount applies where no capital expenditure was originally incurred.

Capital Allowances Act 2001 section 70DA

Transfer and long funding leaseback: restrictions on lessee's allowances

Section 70DA restricts the capital allowances available to a lessee where plant or machinery has been transferred to another party and then leased back under a long funding lease.

Where a person (S) transfers plant or machinery to another person (B) and then S, or someone connected with S, leases it back under a long funding lease, the lessee's capital allowances are restricted
No annual investment allowance or first-year allowance may be claimed by S or the connected person on expenditure under that lease
The qualifying expenditure available for writing down allowances is capped: only the amount of lease expenditure (E) up to the value of D counts, where D is broadly the lower of the disposal value, the original cost, or market value of the asset
If S was not required to bring a disposal value into account on the transfer, and S or a linked person originally acquired the asset without incurring capital expenditure or arm's length revenue expenditure, then D is nil — meaning no writing down allowances are available at all

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