Chapter 3: Leased trading assets
Overview
2553.This Chapter is based on sections 782 and 785 of ICTA.
2554.This Chapter applies where a company carrying on a trade pays rent under a lease of an asset other than land or buildings and at any time before the lease was created the asset was used either (a) in that trade or (b) in another trade carried on by the person who then or later was carrying on the first trade and, in either case, when so used was owned by the company carrying on the trade in which it was used.
2555.If this Chapter applies, it provides that in computing the profits and gains of the trade the deduction in respect of a payment under the lease shall not exceed the commercial rent of the asset for the period for which the payment was made.
2556.This Chapter has the following structure.
Section 863 summarises the Chapter.
Section 864 states when the Chapter applies.
Section 865 restricts corporation tax relief and carries forward relief which has been denied.
Sections 866 and 867 supplement section 865.
Sections 868 and 869 are interpretative.
Section 863: Overview of Chapter
2557.This section summarises this Chapter. It is new.
2558.The word “lease” appears in this section for the first time in this Chapter. It is defined in section 868.
Section 864: Leased trading assets
2559.This section states when this Chapter applies to a payment. It is based on section 782(1) and (8) to (10) of ICTA.
2560.Subsection (1) introduces the three conditions relating to the application of this Chapter and explains their logical relationship.
2561.Subsection (2) specifies condition A, concerning the payment.
2562.In particular, under subsection (2)(a) the payment must be made under the lease of a “relevant asset”. The expression “relevant asset” appears in subsection (2)(a) for the first time in this Chapter. It is defined in section 869.
2563.Subsections (3) and (4) specify conditions B and C. These are two alternative conditions concerning the use to which the leased asset was put before it was leased.
2564.Subsections (2)(b), (3)(a) and (b)and (4)(c) omit 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 the commentary on section 837 and Change 4 in Annex 1.
2565.Subsection (5) preserves the rule that, if the lease was created before the legislation was first introduced, a lease-back after that date does not activate the legislation.
Section 865: Tax deduction not to exceed commercial rent
2566.This section restricts corporation tax relief and carries forward relief which has been denied. It is based on section 782(1) to (4) of ICTA.
2567.Subsection (3) brings the law into line with practice. See the commentary on section 838 and Change 55 in Annex 1.
Section 866: Long funding finance leases
2568.This section makes an exception for long funding finance leases. It is based on section 782(1A) of ICTA.
Sections 867 and 868: Commercial rent; lease
2569.These interpretative sections are based on sections 782(6) and (7) and 785 of ICTA.
Section 869: Relevant asset
2570.This section defines “relevant asset” for the purpose of this Chapter. It is based on the definition of “asset” in section 785 of ICTA.
2571.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, this section uses the new term “relevant asset”.
