Income and Corporation Taxes Act 1970

492 Assets leased to traders and others

(1) Subject to section 493 below, where—

(a) a deduction by way of tax relief which is of one of the kinds listed in subsection (3) below is allowable in respect of a payment made under a lease of an asset of any description, and

(b) before, at or after the time when the payment is made, either—

(i) the person who made the payment has obtained or obtains a capital sum in respect of the lessee's interest in the lease, or

(ii) the lessor's interest in the lease, or any other interest in the asset, has belonged to an associate of the person who made the payment, and that associate has obtained a capital sum in respect of that interest,

the person obtaining that sum shall be charged under Case VI of Schedule D for the chargeable period in which the sum is obtained with tax on an amount equal to the amount of the payment in respect of which tax relief is so allowed:

Provided that the total amount on which he is assessed by reference to the capital sum shall not exceed the amount of the capital sum.

(2) Subsection (1) above shall not apply to payments under a lease created on or before 14th April 1964.

(3) The kinds of deductions by way of tax relief to which subsection (1) above applies are as follows—

(a) a deduction in computing profits or gains or losses of a trade, profession or vocation for the purposes of tax,

(b) a deduction in computing profits of gains chargeable under Case VI of Schedule D, or in computing any loss for which relief is allowable under section 176 or section 179 of this Act (Case VI losses),

(c) allowance of a payment under section 304 or 305 of this Act (management expenses),

(d) a deduction from emoluments to be assessed under Schedule E made in pursuance of section 189(1) of this Act (necessary expenses), or allowable in computing losses in an employment for tax purposes,

(e) a deduction allowable for tax purposes in computing profits or gains or losses arising from woodlands.

(4) Where the deduction by way of tax relief mentioned in subsection (1)(a) of this section is a deduction in computing, for income tax purposes, profits or gains or losses of a trade, profession or vocation, or arising from woodlands, and any part of the payments made under the lease by the person obtaining the capital sum is a payment in respect of which a deduction is not allowed for the reason that the whole or any part of the period in which the payment would fall to be allowed is not a period on the profits or gains of which income tax falls to be computed in respect of the trade, profession or vocation, for the reference in the proviso to the said subsection (1) to the amount of the capital sum there shall be substituted a reference to that amount after deducting the amount of the payment in respect of which a deduction is not allowed for that reason.

(5) So far as in respect of a capital sum any part of a payment allowed as a deduction by way of tax relief of a kind to which this section applies is taken into account in making an assessment under subsection (1) of this section, that part of the payment shall be left out of account in determining whether any and if so what amount should be assessed by reference to any other capital sum ; and the order in which this subsection is applied shall be the order in which the capital sums are obtained.

(6) In this section and sections 493, 494 and 495 below—

• " asset " means any description of property or rights other than land or an interest in land,

• " capital sum " means any sum of money, or any money's worth, except so far as it or any part of it is to be treated for the purposes of tax as a receipt to be taken into account in computing the profits or gains or losses of a trade, profession or vocation, or profits or gains or losses arising from woodlands, or is, apart from this section, chargeable under Case VI of Schedule D, and

• " lease ", in relation to an asset, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, an asset, and includes, in particular, any agreement or arrangement all or any of the payments under which represent instalments of, or payments towards, a purchase price.

(7) There shall be made all such adjustments of tax, whether by way of making assessments or by repayment of tax, as are required after the making of any such payment as is described in subsection (1) of this section to give effect to the charge under that subsection in respect of a sum obtained before the making of the payment.

(8) Notwithstanding anything in the Tax Acts limiting the time within which an assessment may be made or a claim for relief may be admitted any such adjustment may be made, by making an assessment or otherwise, at any time not more than six years from the end of the chargeable period in which the payment was made.