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HMRC internal manual

Business Leasing Manual

Plant and machinery leasing - Anti-avoidance: Sales of lease rental streams - Capital Allowances and Rental Rebates: Claim to Capital Allowances before 9 December 2009

The Disclosure of Tax Avoidance Schemes regime highlighted some arrangements that intended to avoid tax by exploiting the disconnect in the leasing rules between the taxation of income and relief for expenditure.

One scheme involved a lessor, initially resident outside the UK, entering into arrangements to buy plant or machinery that, when acquired, would be leased under a non-long funding lease.


While the lessor is still offshore it sells a proportion (for example 90%), of the right to receive the rental income to another offshore company. This sale is treated as a capital transaction. The proceeds of the sale are not taxed in the UK because the lessor is not UK resident at the time.

The lessor then migrates to the UK for tax purposes and, once resident in the UK, it buys the plant or machinery which it has pre-arranged to lease. The lease then commences and the lessor claims the full cost as qualifying expenditure for capital allowances purposes.

Therefore the whole of the lessor’s expenditure on the plant or machinery would be claimed as qualifying expenditure for capital allowances, but only the 10% of the lease income to which the lessor remains entitled, will be taxed within the UK net. The remaining 90% is treated as a capital receipt that does not fall within the UK tax net.

HMRC does not necessarily agree that the arrangements worked as described. However, to put the matter beyond doubt, legislation was introduced from 9 December 2009. This is outlined at BLM64015.

If you see this type of arrangement where the lessor’s capital expenditure was incurred before 9 December 2009 please contact CTIS (CT&BIT).