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HMRC internal manual

Company Taxation Manual

Particular topics: rent factoring: legislation overview

The legislation applies only to companies and to transactions they enter into on or after 21 March 2000.

It taxes a lump sum received for giving up the right to future income in a rent factoring transaction as a receipt of a Schedule A business. This receipt is taxable in full in the year it is received.

A rent factoring transaction is identified by reference to the correct accountancy treatment in either the accounts of the company involved in the transaction or in the consolidated accounts of which they form part. This accountancy treatment test assumes that the company involved in the transaction and all related companies were all UK resident. The accountancy treatment is therefore that required by UK accounting standards.

The transaction is potentially caught if the correct accountancy treatment would record a financial obligation in relation to the money received in the transaction. This definition ensures that the new provisions apply only to transactions that are in substance equivalent to money loans.

The legislation is not intended to affect genuine investment in property, some of which may have some structural similarities to rent factoring. To avoid catching non-rent factoring transactions the legislation will not apply to arrangements:

  • where the economic life of the arrangements is not significantly different from the tax life of the lease,
  • where the pricing of the deal is significantly affected by the availability of capital allowances to the lender,
  • if the lump sum is taxable under Case I of Schedule D.