Capital allowances ― sale and leaseback arrangements

Produced by Tolley in association with and

Owner-Managed Businesses

Guidance

Background

Allowances are available to a person leasing plant to a third party, whether that is as part of a plant hire business or merely incidental to some other activity. Most commonly, fixtures and other plant may effectively be leased to the tenant of a property by the landlord. In such cases, it is of no consequence whether or not there is a separate lease of the fixtures, nor indeed whether the fixtures are mentioned in the lease.

Sale and leaseback arrangements were unsuccessfully challenged by HMRC in Barclays Mercantile Business Finance Ltd v Mawson and BMBF (No 24) Ltd v IRC. As a result of the taxpayer’s success in this case, it is accepted that allowances are available, even where the availability of those allowances is a fundamental reason for the acquisition of the plant by the lessor.

The transaction in BMBF which relied on the future lease payments being deposited as cash collateral was specifically blocked in 1998 by a risk-based test in what is now

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Martin Wilson

Martin Wilson, specialised in capital allowances for 25 years before retirement. He is the author of numerous published works on the subject, including Bloomsbury's Capital Allowances: Transactions & Planning, and the capital allowances content of LexisPSL, Tolley's Tax Guidance, Tolley's Tax Planning and Simon's Tax Planning.

Steven Bone

Director at Gateley Capitus

Steven is a tax-qualified Chartered Surveyor who has specialised in tax incentives, including capital allowances and land remediation relief for over 20 years. Previously he held senior specialist positions in 'Big 4' and national mid-tier accountancy firms. Capital allowances underpin income tax and corporation tax calculations by giving tax relief for money spent to buy, build or alter commercial property. Steven works with owner-occupiers, investors and their advisers to provide capital allowances opinions, transaction support and specialist valuations for all types of property. This includes resolving HM Revenue capital allowances enquiries and giving expert evidence to tribunals and courts. Steven has contributed to many articles and books, including: Bloomsbury Professional's Capital Allowances, Tolley's Tax Planning, RICS's official Guidance Note for surveyors on Capital Allowances and Land Remediation Relief, and Practical Law Company's Practice Note on Commercial Property Standard Enquiry 32 dealing with capital allowances.

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