Chapter 1: Payments connected with transferred land
Overview
2464.This Chapter is based on section 779 of ICTA. It counters certain avoidance devices based on arrangements for the sale and lease-back of land or on analogous arrangements, such as arrangements for sale of land with reservation of a rentcharge. It restricts tax relief for lease rental expenditure.
2465.The Chapter has the following structure.
Section 834 summarises the Chapter.
Sections 835 to 837 say when the Chapter applies and define “relevant corporation tax relief”.
Section 838 restricts relevant corporation tax relief and carries forward relief which has been denied.
Sections 839 to 842 restrict corporation tax relief for certain insurance company expenses and carry forward relief which has been denied.
Sections 843 to 848 are interpretative.
Section 834: Overview
2466.This section summarises this Chapter. It is new.
Section 835: Transferor or associate becomes liable for payment of rent
2467.This section sets out the conditions for section 838 or, as the case may be, section 839 to apply in a case involving the payment of rent. It is based on section 779(1), (3), (13) and (14) of ICTA.
2468.Subsection (1) lists the conditions which must be met if section 838 (relevant corporation tax relief: deduction not to exceed commercial rent) is to apply.
2469.The words “rent” and “lease” appear for the first time in this Chapter in subsection (1)(b). They are defined in section 846.
2470.Subsection (2) lists the conditions which must be met if section 839 (deduction under section 76 of ICTA not to exceed commercial rent) is to apply.
2471.Subsection (3) explains what is meant in subsections (1)(a) and (2)(a) by “transferring” an estate or interest in land.
2472.Subsection (4) explains what is meant in this Chapter by the “transferor”.
2473.Subsections (5) and (6) explain what is meant in subsections (1)(b) and (2)(b) by becoming “liable” to make a payment.
2474.Subsection (7) preserves the rule that, if the transfer was made before the legislation was first introduced, a lease-back after that date does not activate the legislation.
Section 836: Transferor or associate becomes liable for payment other than rent
2475.This section sets out the conditions for the Chapter to apply in a case involving a payment other than rent. It is based on section 779(2), (3), (13) and (14) of ICTA. It is very similar in structure to section 835. See the commentary on that section.
2476.If, in a given case, the reader is satisfied that at least one of the conditions in section 835 is not met and at least one of the conditions in this section is not met, the reader can conclude that as this Chapter does not have effect there is no need to read any further in it.
Section 837: Relevant corporation tax relief
2477.This section lists, for the purposes of this Chapter, the deductions by way of “relevant corporation tax relief”. It is based on section 779(13) of ICTA.
2478.Paragraph (a)omits references to a profession and to a vocation where the source legislation refers to the carrying on by a company of a trade, profession or vocation. See Change 4in Annex 1. The same change is being made in sections 851, 860, 864, 880, 883 and 886.
Section 838: Relevant corporation tax relief: deduction not to exceed commercial rent
2479.This section restricts relevant corporation tax relief for payments falling within section 835(1) or 836(1) and, in certain cases, provides for such relief to be carried forward. It is based on section 779(1), (2) and (4) to (6) of ICTA.
2480.Subsection (3) puts on a clear statutory footing the practice of spreading lease rental expenditure in accordance with GAAP before applying section 779 of ICTA. This is a minor change in the law, in favour of the taxpayer. See Change 55 in Annex 1.
2481.Section 865 makes the same change in rewriting section 782 of ICTA.
Section 839: Deduction under section 76 of ICTA not to exceed commercial rent
2482.This section is a special rule restricting deductions under section 76 of ICTA (relief for certain insurance company expenses) in relation to payments falling within section 835(2) or 836(2). It is based on section 779(1), (2), (4) and (6) of ICTA.
2483.Section 76 of ICTA does not use GAAP. Accordingly, cases within section 76 of ICTA are excluded from the main rule in section 838, and sections 840 to 842 supplement this section.
Section 840: Carrying forward parts of payments
2484.This section permits amounts which have been disallowed under section 839 to be carried forward to a later period (and thus, potentially, relieved). It is based on section 779(5) and (6) of ICTA, and is the first of three sections supplementing section 839.
2485.Subsections (1) to (3) specify the conditions which must be met if this section is to apply.
2486.Subsection (4) is the main operative provision.
2487.Subsection (5) permits the section to be applied repeatedly.
Section 841: Aggregation and apportionment of payments
2488.This section is concerned with the aggregation and apportionment, for the purposes of section 839, of payments under the lease or rentcharge etc. It is based on section 779(6) of ICTA, and is the second of three sections supplementing section 839.
Section 842: Payments made for later periods
2489.This section prevents the taxpayer escaping section 839 by labelling the bunched-up payments as payments for later periods. It is based on section 779(7) of ICTA, and is the third of three sections supplementing section 839.
Section 843: Exclusion of service charges etc
2490.This section is concerned with service charges and the like. It is based on section 779(6) and (12) of ICTA. It applies for the purposes of both the main rule in section 838 and the special rule for certain insurance company expenses in section 839.
2491.Leases commonly provide for the tenant to pay the landlord not only rent but also service charges and the like, and these may be paid in a single sum; the definitions of “commercial rent” in sections 844 and 845 of this Act do not include service charges etc and so this section correspondingly excludes them from the amount with which the commercial rent is compared.
2492.Subsections (3) and (4) prevent the taxpayer escaping this Chapter by agreeing to pay an excessive amount by way of service charge. They include a minor change in the law to bring it into line with Self Assessment. See Change 56 in Annex 1.
2493.The source legislation uses the term “asset”, which is defined to exclude land and interests in land. Since many readers may find this counter-intuitive, subsection (2)(b) refers to “relevant assets”. The term “relevant asset” is defined in subsection (5). Chapters 3 and 4 of this Part also use the term “relevant asset”, for the same reason. See sections 869 and 885 of this Act.
Section 844: Commercial rent: comparison with rent under a lease
2494.This section defines “commercial rent” for the purpose of comparison with rent under a lease. It is based on section 779(8) of ICTA.
2495.Commercial rent is the rent payable under a hypothetical lease. Under subsection (3)(d), the hypothetical lease provides for rent to be payable “at an appropriate rate”. This expression is defined in subsection (4).
Section 845: Commercial rent: comparison with payments other than rent
2496.This section defines “commercial rent” for the purpose of comparison with payments other than rent. It is based on section 779(9) and (12) of ICTA.
2497.Commercial rent is the rent payable under a hypothetical lease. Under subsection (2)(b), the hypothetical lease is “a tenant’s repairing lease”. This expression is defined in subsection (3).
2498.Under subsection (2)(c), the hypothetical lease is “of an appropriate duration”. The rules for determining whether a lease is of an appropriate duration are laid down in subsection (4).
Section 846: Lease and rent
2499.This section defines “lease” and “rent” for the purposes of this Chapter. It is based on section 779(10) and (12) of ICTA.
Section 847: Associated persons
2500.This section defines “associated persons” for the purposes of this Chapter. It is based on section 779(11) of ICTA.
Section 848: Land outside the UK
2501.This section explains how expressions in this Chapter relating to interests in land in the United Kingdom and their disposition are to be interpreted in cases involving land outside the United Kingdom. It is based on section 779(12) of ICTA.
