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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: sale and leaseback: tax treatment of sale - capital allowances

Transactions occurring before 9 October 2007

Prior to 9 October 2007 CAA01 s.217 and s.218 acted to restrict the capital allowances available to the lessor in a sale and lease-back of plant or machinery (other than in a sale and finance leasebacks where s.223, 224 or 225 applied instead). See CA28300 for guidance.

The legislation acted to limit the allowances available to the lessor to the notional written down value of the items concerned; essentially the notional written down value was the amount that would still be available had the vendor/lessee claimed all possible writing down allowances up to the date of sale.

To ensure that this legislation is applied in appropriate cases it is important for the lessee’s Inspector to pass information about sale and leaseback transactions to the lessor’s Inspector. There will be little means of identifying such transactions in the lessor’s accounts. From the lessor’s standpoint a sale and lease-back is accounted for in the same way as other finance leases.

Transactions occurring on or after 9 October 2007

As a result of the changes detailed in BLM35026, s.217 and s.218 continue to have no application to sale and finance leasebacks and s.217 no longer refers to s.223, which has been repealed. Otherwise they continue to apply to sale and leasebacks where the leaseback is not a finance lease.