1166.The sales of lessors Chapters, based on Schedule 10 to FA 2006, are designed to deter arrangements which have the effect of converting the corporation tax deferral arising from the availability of capital allowances to companies which carry on a business of leasing plant or machinery into a permanent deferral of tax.
1167.The sales of lessors Chapters counter these arrangements by imposing a charge to corporation tax on the leasing company on any day:
if there is a qualifying change of ownership of the company on that day; or
in a case where the leasing business is carried on by the company in partnership, if there is a qualifying change on that day in the company’s interest in the business.
1168.The tax charge is broadly equivalent to the tax benefit enjoyed down to that day and the rules are designed to ensure that it is borne by the selling group.
1169.In the case of a qualifying change in the ownership of the leasing company, a relief equivalent to the charge is given to the company on the day after the qualifying change and the rules ensure that the relief can only be accessed by the buying group. In the case of a qualifying change in the company’s interest in a business carried on in partnership, relief is given to the other partner companies whose interest in the business carried on in partnership has increased.
1170.The effect of this is that a tax-driven sale to a loss making group is unattractive as the charge recovers the tax benefits taken by the selling group and a loss making buying group has no interest in an additional relief which merely increases its tax losses.
1171.The intended tax effect on a commercially driven sale to another (profitable) group is that it should be broadly neutral, as the charge and the relief cancel each other out. The relief is valuable to the profit making buying group and so it can be expected that the price paid reflects this and compensates the selling group for the tax charge.