Corporation Tax Act 2010 section 288

Sale and lease-back

Section 288 restricts the deduction of lease-related finance costs against ring fence trade profits where a company has sold a trade asset and then leased it back, unless the sale proceeds are reinvested in oil extraction activities.

• Where a company sells a trade asset and then leases it back for use in a ring fence trade within two years, the finance charges or interest costs arising under the lease cannot be deducted against ring fence profits
• The disallowance does not apply to the extent that the sale proceeds are used (or earmarked) by the seller for oil extraction activities or for acquiring oil rights from unassociated companies
• Any lease expenditure that is disallowed against ring fence profits is instead treated as a non-trading loan relationship debit, so it can be relieved against the lessee's other profits
• The rule applies to finance charges under standard leases, interest expenses under right-of-use long funding finance leases, and deductible amounts under long funding operating leases