Disposal values: commencement of long funding finance leases
2.Paragraph 1 amends the disposal value to be brought into account on granting a long funding lease.
3.Sub-paragraph (2) replaces item 5A in the Table at section 61(2) of the Capital Allowances Act 2001 (CAA) with revised text. The description of the disposal event is unchanged but the disposal value is now found by taking the greater of the market value of the plant or machinery and the qualifying lease payments.
4.Sub-paragraph (3) inserts a new subsection (5A) into section 61 of CAA; this defines the “qualifying lease payments” for the purposes of item 5A. These are the minimum payments under the lease excluding the gross return on investment, i.e. the ‘interest’ element in the lease rental payments, and so much of any payment included in the lease rental in respect of charges for services or payments to cover qualifying tax to be paid by the lessor. Any initial payment made by the lessee is included in the calculation of the qualifying lease payments and thus will not be taxed on the lessor under section 785B of the Income and Corporation Taxes Act 1988 (ICTA) or section 809ZB of the Income Taxes Act 2007 (ITA).
5.Sub-paragraph (4) repeals subsections (6) to (9) of section 61 of CAA. These subsections relate to the meaning of the expression “net investment in the lease” and are no longer relevant as the revised disposal value does not use this concept.
6.Paragraph 2 repeals paragraph 4 of Schedule 20 to Finance Act (FA) 2008 which introduced subsections (6) to (9) of section 61 of CAA.
7.Paragraph 3 amends section 25A of the Taxation of Chargeable Gains Act 1992 (TCGA) so that it is consistent with the changes made to section 61 of CAA by paragraph 1.
8.Sub-paragraph (3) substitutes for subsections (4) to (4D) a definition of “relevant disposal value”. For long funding finance leases this is the value at item 5A of the Table in section 61(2) of CAA and for long funding operating leases it is the value at item 5B of that Table.
9.Paragraph 5 contains commencement provisions.
