What does section 261 of the Capital Allowances Act 2001 do?

Section 261 restricts how companies carrying on long-term business, such as life assurance, can use capital allowances from special leasing of plant or machinery. It prevents these companies from carrying back excess allowances, setting them against other profits, or surrendering them as group relief, confining relief to income from the special leasing activity itself.

What is special leasing under the Capital Allowances Act 2001?

Special leasing, as defined by section 19 of the Capital Allowances Act 2001, refers to the leasing of plant or machinery where the leasing activity does not form part of a trade or other business. Because no underlying trade exists, the resulting capital allowances follow specific rules rather than the general trading allowance provisions.

Can a long-term business company surrender special leasing allowances as group relief?

No. Section 261 disapplies the group relief provisions in sections 99 and 113 of the Corporation Tax Act 2010 for companies carrying on long-term business. This means excess special leasing allowances cannot be surrendered to fellow group companies and must remain ring-fenced within the special leasing activity.

What happens to excess special leasing allowances for a life assurance company?

Excess special leasing allowances for a life assurance or other long-term business company cannot be offset against other profits, carried back to earlier periods, or surrendered as group relief. They can only be carried forward and set against future income from the same special leasing activity, effectively ring-fencing the relief.

Capital Allowances Act 2001 section 261

Special leasing: long-term business

Section 261 restricts how companies carrying on long-term business (such as life assurance) can use capital allowances arising from the special leasing of plant or machinery.

Companies carrying on long-term business cannot carry back excess capital allowances from special leasing to earlier accounting periods
Such companies cannot set excess special leasing allowances against other profits of the same accounting period
Group relief provisions do not apply to special leasing allowances for these companies
These restrictions ensure that special leasing allowances for long-term business companies can only be relieved against income from the special leasing activity itself

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