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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: Rental Rebates paid before 9 December 2009

As mentioned in BLM64005, the Disclosure of Tax Avoidance Schemes regime highlighted arrangements that intended to avoid tax using rental rebates within leases of plant and machinery. These arrangements are similar in principle to those outlined at BLM64010, but the rental rebate variant relies on an unintended trading deduction being taken for the rebate paid rather than retaining the benefit of the capital allowances.


As in the example at BLM64010 the lessor pre-sold the rights to 90% of the lease rentals offshore before the lease commenced.

Here however, the lessee terminates the lease very shortly after commencement. As this was a full payout lease they paid the lessor a termination sum of £100m. The lessor then sold the plant or machinery for its market value of £100m and, again in accordance with the terms of a full payout lease, paid a rental rebate of £100m to the lessee.

The scheme was disclosed as giving the lessor a neutral capital allowances position. The qualifying expenditure of £100m is matched by a disposal value of £100m on the sale of the asset. The benefit is said to arise from a revenue deduction claimed for the payment of the rental rebate by the lessor.

As with the arrangements outlined at BLM64040 the lessor has pre-sold the entitlement to 90% of the income. As a result it is claimed that the lessor will be taxable on only 10% of the termination sum received from the lessee but will still be liable, and will therefore obtain a revenue deduction, for the full amount of the rental rebate. In either variant the lessor claims a tax loss of £90m without generating a commercial loss.

HMRC does not necessarily agree that the above arrangements worked as described. However, to put the matter beyond doubt, legislation was introduced from 9 December 2009. This is outlined at BLM64025.

If you see an incidence of this scheme where the payment of the rental rebate falls before 9 December 2009 please contact CTIS (CT&BIT).