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Capital Allowances Act 2001

Sections 227 and 228: Sale and leaseback or sale and finance leaseback: election for special treatment

822.These two sections are based mainly on section 76B of CAA 1990. They apply, if the parties elect, to transactions involving new and unused assets. They enable writing-down allowances claimed by the buyer (the lessor) to be limited only to the smaller of:

  • the cost to the seller (the lessee) or anyone connected with the seller; and

  • the sale price to the buyer (the lessor).

823.This applies to both finance lease and non-finance lease cases.

824.In section 227:

  • subsection (2)(b) is based in part on section 83(1) of CAA 1990 which defines “new”;

  • subsection (3) ensures that the conditions in subsection (1) work properly if the transaction is the assignment of the benefit of a hire-purchase or like contract; and

  • subsection (6) is an interpretation rule to fix the date of the transaction for the purposes of the election required under subsection (4).

825.Section 228 gives the effect of an election:

  • subsection (1) disapplies the limits of sections 218 and 224 and substitutes a restriction on the buyer’s qualifying expenditure in accordance with subsections (2) and (3). The net effect of them is as summarised in paragraph 822 above.

  • subsection (4) makes this subject to section 225 which prevents any allowance at all in sale and leasebacks if more than half the risk to the lessor has been removed.

  • subsection (5) states the consequences of the special treatment for the seller: no allowances are due in respect of the seller’s expenditure on the asset.

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