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HMRC internal manual

Business Leasing Manual

Sale of lessor companies and similar arrangements: anti-avoidance: tackling avoidance

Section 432 and 433 CTA2010

When a lessor company changes hands the sale of lessor company legislation triggers both an income and expense amount. The expense amount can create a trading loss in the lessor company that is available to set sideways against other profits of the same accounting period and to surrender as group relief. The benefits of the expense are normally counter-balanced by the effect of the income amount in the hands of the selling group and the exposure to tax on the income stream from the lease in the future. Nevertheless, it is possible that arrangements may be entered into to trigger the effect of the sale of lessors leguslation in order to get the benefit of the expense amount.

Where the main purpose or one of the main purposes of arrangements entered into is to obtain the benefit of the expense amount then section 433 restricts the use of any loss derived from the expense so that it is only available to be set off against ‘relevant leasing income’, see BLM82010. The loss cannot be surrendered as group relief nor set against other profits in the same accounting period. The amount of the loss which is derived from the expense is calculated by treating the expense amount as the last amount to be deducted in computing the loss.

The provision is widely drawn to encompass ‘any agreement, understanding, scheme, transaction or series of transactions’ (see section 432). The arrangements do not have to be legally enforceable and the company that obtains the benefit of the expense amount does not have to be a party to the arrangement. This recognises that the arrangement is likely to be contrived so as to ensure, for example, that the expense amount is tax effective while the income amount falls out of charge.