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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Sale of lessor companies and similar arrangements: partnerships: effect of the sale of lessor company legislation

The effect of the sale of lessor companies provisions is different depending on whether there is a change in the partners’ interests in the partnership business or there is a change in the ownership of the partner company.

When there is a ‘qualifying change’, that is a reduction in a partner company’s interest in the leasing business:

  • that partner company is treated as receiving an amount of income on that day; and
  • any other company that carries on the business in partnership on that day is treated as incurring an expense.

The income is treated as a receipt of the partner’s notional business and the expense is treated as an expense of the other partner’s notional business.

When there is a ‘qualifying change’ in the ownership of the partner company:

  • that partner company is treated as receiving an amount of income on that day; and
  • the accounting period of that company ends; and
  • on the day following that day the company is treated as incurring an expense; and
  • a new accounting period starts.

The income is treated as a receipt and the expense as an expense of the partner’s notional business.

If the expense amount produces a loss there are restrictions on how that loss can be used. Where the relevant day falls before 21 March 2012 the loss is not available to carry back against profits of the earlier accounting period. Where the relevant day falls on or after 21 March 2012 the loss cannot be carried back against profits or the leasing business.

Where there is both a change in the partnership sharing arrangements and the ownership of the partner company special rules ensure that the measure acts fairly, see BLM81095.