Particular topics: rent factoring: a common example
Rent factoring can be structured in different ways. An example of the most common type of rent factoring is set out below. This type of scheme is the one examined in the case John Lewis Properties Ltd v CIR 75TC131.
A group holds freehold and leasehold property in a dedicated property company, which in turn leases these to the group operating companies.
In return for a lump sum the property company sells the right to its rental income to a bank for a period of years, typically five.
The company asserts that it has made a part-disposal of the land and buildings concerned, the capital gain on which is covered by losses (or in some instances the computation results in a capital loss), or roll over relief is claimed.
The operating companies pay rents direct to the bank, which covers both the payment of interest and the repayment of the loan principal.
After the end of the period of the loan all the rights to the properties are passed back to the group.