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HMRC internal manual

Capital Gains Manual

Targeted rules to prevent income to capital converter schemes by companies - arrangements the legislation will not catch

TCGA92/S184G to I are targeted at contrived arrangements that seek to use capitallosses to reduce income profits. It is not intended that the legislation will be used torestrict companies’ ability to make use of normal commercial practices which mayhappen to have some characteristics in common with the targeted arrangements.

As mentioned in CG44125 it is unlikely that normal sale and leaseback transactions, usedby companies to provide funding for their business from an unconnected third party, willbe caught i.e., the fact that a company incurs an ongoing rent charge, deductible againstits profits, will not in itself be enough to bring the arrangements within thelegislation. There would need to be a tax avoidance main purpose and in this situation itis unlikely that this would be present.

Additional certainty is provided by the legislation as there is an explicit carve out forthe sale and lease back of real property with unconnected parties. Where similarcommercial considerations apply, then HMRC will follow this practice in similartransactions, unless there are other factors to the arrangements that suggest the use ofcapital losses is integral to obtaining a wider tax advantage.