Taxation (International and Other Provisions) Act 2010 Schedule 4

Sale and lease-back etc.: new Part 12A of ITA 2007

Schedule 4 inserts a new Part 12A into the Income Tax Act 2007, containing four chapters of anti-avoidance rules that restrict income tax relief where assets (particularly land) are sold and then leased back, or where capital sums are extracted from leased assets.

• Chapter 1 restricts income tax relief for rent or other payments connected with land that has been transferred, by capping the deduction at a "commercial rent" — the rent that would be payable at arm's length on the open market — and provides detailed rules for spreading unrelieved expenses and excluding service charges from the restriction.
• Chapter 2 addresses situations where a lessee assigns or surrenders a lease with 50 years or less to run and then obtains a new short lease (15 years or less) of the same land; the consideration received for the assignment or surrender is taxed as trading income or charged to income tax, with the taxable proportion increasing the shorter the new lease, and the new lease rent remains eligible for relief.
• Chapter 3 restricts the income tax deduction for payments under a lease of a non-land trading asset (such as plant and machinery) where the asset was previously owned and used in the trade before being leased back, again by capping the deduction at a commercial rent based on the asset's market value and expected working life.
• Chapter 4 charges income tax where a capital sum is obtained in respect of an interest in a leased non-land asset (by the lessee, an associate of the lessee, or the lessor or their associate) and lease payments have attracted tax relief; the charge is limited to the lesser of the total relieved payments and the capital sum obtained, with special rules for hire-purchase agreements, disposals to associates, and apportionment among partners or joint owners.

---