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HMRC internal manual

Business Leasing Manual

Sale of lessor companies and similar arrangements: introduction and background: effect of the sale of lessor company legislation

The sale of lessor company legislation triggers an income amount and expense amount whenever a lessor company changes hands. (See BLM81000 onwards where the leasing business is carried on by a cpmpany in partnership.)

The concept of ‘changing hands’ goes much wider than simply selling the company. The legislation refers to a ‘qualifying change of ownership’. In broad terms it covers a change in the ownership of a company which might result in a change in the flow of group relief to or from the lessor company. Detailed guidance on what is meant by a qualifying change of ownership is at BLM80315.

It does this by

  • identifying a business of leasing plant or machinery, see BLM80100 
  • identifying when a lessor company changes hands, which the legislation refers to as a ‘qualifying change of ownership’ (this is much wider than a simple sale, see BLM80300)
  • calculating an amount of income and bringing this into the computation of profits in the lessor company, see BLM80500 
  • bringing the accounting period of the lessor company to a close
  • calculating an expense to be deducted in the new accounting period of the lessor company.

The income amount is designed to recover the tax benefits derived from capital allowances by the selling group and the expense amount returns that benefit to the buying group. The expense amount is available to the buying group and is of little use to a loss-making group, but can be used by a profitable group and so sales to loss-makers , where tax might be at risk are deterred. The same principles apply to the similar avoidance using partnerships.

The legislation applies only to companies within the charge to corporation tax carrying on a business alone or in partnership.