Capital Allowances Act 2001 section 116

Mitigation of regime

Section 116 provides relief from the overseas leasing restrictions where plant or machinery is leased jointly to multiple persons and the lessees use it for qualifying activities that generate UK-taxable profits.

• The section applies where plant or machinery is leased to two or more persons jointly, at least one of whom is non-UK resident and does not use the asset exclusively to earn UK-taxable profits, and the leasing is not protected leasing
• Where the joint lessees use the plant or machinery for qualifying activities (but not for further leasing), the expenditure can be exempted from the overseas leasing pool, reduced writing-down allowance, and prohibition rules — to the extent that the qualifying activity profits will be taxable throughout the designated period or the lease period, whichever is shorter
• Where only part of the expenditure qualifies for this relief, the legislation treats the exempt portion and the non-exempt portion as if they related to two separate items of plant or machinery, with the non-exempt portion remaining subject to the overseas leasing restrictions
• Any apportionments necessary to give effect to this splitting of expenditure between the two notional items must be carried out