Income Tax Act 2007

Restrictions on sideways relief for certain capital allowances

75 Trade leasing allowances given to individuals

(1) Sideways relief is not available to an individual for so much of a loss as derives from a trade leasing allowance unless the individual meets the time commitment test.

(2) A trade leasing allowance is an allowance made under Part 2 of CAA 2001 in respect of—

(a) expenditure incurred on the provision of plant or machinery for leasing in the course of a trade, or

(b) expenditure incurred on the provision for the purposes of a trade of an asset which is not to be leased but which is fee-producing.

(3) An asset is fee-producing if payments in the nature of—

(a) royalties, or

(b) licence fees,

are to arise from rights granted by the individual in connection with the asset.

(4) To meet the time commitment test conditions A and B must be met.

(5) Condition A is that the individual must carry on the trade for a continuous period of at least 6 months beginning or ending in the basis period for the tax year in which the loss was made (“the loss-making basis period”).

(6) Condition B is that substantially the whole of the individual’s time must be given to carrying on the trade—

(a) for a continuous period of at least 6 months beginning or ending in the loss-making basis period (if the individual starts or permanently ceases to carry on the trade in the tax year (or does both)), or

(b) throughout the loss-making basis period (in any other case).

76 First-year allowances: introduction

Sideways relief is not available to an individual for so much of a loss as derives from a first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 applies.

77 First-year allowances: partnerships with companies

(1) This section applies if—

(a) the first-year allowance is in respect of expenditure incurred at any time on the provision of plant or machinery for leasing in the course of a qualifying activity, and

(b) either the qualifying activity was at that time carried on by the individual in partnership with a company or arrangements have been made with a view to the activity being so carried on.

(2) It does not matter—

(a) if the firm includes other partners, or

(b) when the arrangements were made.

(3) For the purposes of this section—

(a) letting a ship on charter is treated as leasing the ship, and

(b) references to making arrangements include effecting schemes.

78 First-year allowances: arrangements to reduce tax liabilities

(1) This section applies if—

(a) the first-year allowance is made in connection with a relevant qualifying activity or a relevant asset (see subsections (2) and (3)), and

(b) arrangements within subsection (4) have been made.

(2) A qualifying activity is a relevant one if—

(a) at the time when the expenditure was incurred, the activity was carried on by the individual as a partner in a firm, or

(b) at a later time, it has been carried on by the individual as a partner in a firm or transferred to a person connected with the individual.

(3) An asset is a relevant one if, after the time when the expenditure was incurred, the asset was transferred by the individual—

(a) to a person connected with the individual, or

(b) to a person at a price lower than its market value.

(4) Arrangements are within this subsection if as a result of them—

(a) the sole benefit, or

(b) the main benefit,

that might be expected to arise to the individual from the transaction under which the expenditure was incurred is the obtaining of a reduction in tax liability by means of sideways relief.

(5) It does not matter when the arrangements were made.

(6) References to making arrangements include effecting schemes.

79 Capital allowances restrictions: supplementary

(1) If relief is given in a case to which section 75 or 76 applies, the relief is withdrawn by the making of an assessment to income tax under this section.

(2) Expressions which are used—

(a) in any of sections 75 to 78, and

(b) in Part 2 of CAA 2001,

have the same meaning in those sections as in that Part.