Office of Public Sector Information
SCHEDULE 12 continued PART I continued
(11) If there is or has been allowed to the current lessor in respect of capital expenditure incurred in connection with the leased asset any deduction by virtue of—
(a) section 91 of the Taxes Act 1988 (cemeteries etc), or
(b) section 91A or 91B of that Act (restoration and preparation expenditure in relation to a waste disposal site),
sub-paragraph (12) below shall apply.
(12) Where this sub-paragraph applies, the current lessor shall be treated as if trading receipts of an amount equal to the lesser of—
(a) the amount or value of the major lump sum,
(b) the deductions previously allowed,
arose to him from the trade in question on the relevant occasion.
(13) If, in a case where this paragraph applies, allowances are or have been made to a person (“the contributor”) by virtue of section 154 of the [1990 c. 1.] Capital Allowances Act 1990 (allowances in respect of contributions to capital expenditure) in respect of his contribution of a capital sum to expenditure on the provision of the leased asset, the foregoing provisions of this paragraph shall have effect in relation to the contributor and allowances by virtue of that section in respect of the contribution as they have effect in relation to the current lessor and allowances in respect of capital expenditure incurred by him in respect of the leased asset.
(14) In sub-paragraph (8) above, “chargeable period or its basis period” shall be construed in accordance with the [1990 c. 1.] Capital Allowances Act 1990.
(15) In the application of sub-paragraph (8) above—
(a) in relation to a trade, profession or vocation set up and commenced on or after 6th April 1994, or
(b) as respects the year 1997-98 or any subsequent year of assessment in relation to a trade, profession or vocation set up and commenced before 6th April 1994,
that sub-paragraph shall have effect with the omission of the words “or its basis period” and sub-paragraph (14) above shall accordingly have effect with the same omission.
12 (1) If, in the case of the lease,—
(a) the current lessor or a person connected with him disposes of—
(i) the lessor’s interest under the lease, or
(ii) the leased asset, or
(iii) an asset representing the leased asset, and
(b) there is, for the period of account of the current lessor in which the disposal takes place, any cumulative accountancy rental excess,
then, in determining for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 the amount of any gain accruing to the person making the disposal, the consideration for the disposal shall be treated as reduced (but not below nil) by setting against it the cumulative accountancy rental excess.
(2) If the disposal mentioned in sub-paragraph (1) above is, for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, a part-disposal of an asset—
(a) the cumulative accountancy rental excess mentioned in sub-paragraph (1) above shall be apportioned between—
(i) the property disposed of, and
(ii) the property which remains undisposed of,
in the proportions in which the sums which under paragraph (a) or (b) of section 38(1) of that Act are attributable to the asset fall to be apportioned under section 42 of that Act; and
(b) only that portion of the cumulative accountancy rental excess which is so apportioned to the property disposed of shall be set against the consideration for the part-disposal in accordance with sub-paragraph (1) above.
(3) Sub-paragraph (1) above is without prejudice to section 37 of the Taxation of Chargeable Gains Act 1992 (deduction for money or money’s worth charged to income tax etc) except as provided in sub-paragraph (4) below.
(4) Section 37 of that Act shall not apply if or to the extent that any money or money’s worth which, apart from this sub-paragraph, would be excluded by virtue of that section from the consideration for a disposal is represented by any cumulative accountancy rental excess which in accordance with sub-paragraph (1) above—
(a) falls to be set against the consideration for the disposal; or
(b) has fallen to be set against the consideration for a previous disposal made by the person making the disposal in question or a person connected with him.
(5) Where the current lessor or a person connected with him disposes of—
(a) the lessor’s interest under the lease, or
(b) the leased asset, or
(c) an asset representing the leased asset,
this Schedule shall have effect as if a period of account of the current lessor ended, and another period of account of his began, immediately before the disposal.
(6) If two or more disposals falling within sub-paragraph (1) above are made at the same time—
(a) the cumulative accountancy rental excess mentioned in sub-paragraph (1) above shall, subject to sub-paragraph (2) above, be apportioned between them in such proportions as are just and reasonable; and
(b) sub-paragraph (5) above shall have effect in relation to those disposals as if they together constituted a single disposal.
(7) In this paragraph “dispose” and “disposal” shall be construed in accordance with the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.
13 (1) This paragraph applies in any case where—
(a) the lease of the asset forms part of an existing scheme, but
(b) the conditions in paragraph 3 above become satisfied after 26th November 1996.
(2) This Schedule shall have effect as if a period of account of the current lessor ended, and another period of account of his began—
(a) immediately before the time at which the conditions in paragraph 3 above become satisfied as mentioned in sub-paragraph (1)(b) above; and
(b) immediately after the time at which those conditions become so satisfied.
(3) If, on the assumption that this Part of this Schedule (other than this paragraph) had applied in the case of the lease at all times on or after 26th November 1996, there would be an amount of cumulative accountancy rental excess for the period of account of the current lessor in which the conditions in paragraph 3 above become satisfied, then—
(a) that amount shall be the cumulative accountancy rental excess for that period of account; and
(b) the current lessor shall be treated for tax purposes as if, in the immediately preceding period of account, he had been entitled to, and there had arisen to him, rent from the lease of an amount equal to that cumulative accountancy rental excess.
(4) If, on the assumption that this Part of this Schedule (other than this paragraph) had applied in the case of the lease at all times on or after 26th November 1996, there would be an amount of cumulative normal rental excess for the period of account of the current lessor in which the conditions in paragraph 3 above become satisfied, that amount shall be the cumulative normal rental excess for that period of account.
(5) The amount of rent mentioned in sub-paragraph (3)(b) above—
(a) is in addition to any other rent from the lease for the period of account there mentioned; and
(b) shall be left out of account for the purposes of paragraph 5 above.
(6) Where a person is treated under sub-paragraph (3)(b) above as if he had in a period of account been entitled to, and there had arisen to him, any rent, the rent shall be treated for tax purposes as if it had accrued, and he had become entitled to it, immediately before the end of that period of account.
(7) In determining for the purposes of this paragraph the amount which would, on the assumption in sub-paragraph (3) or (4) above, be the amount of—
(a) the cumulative accountancy rental excess, or
(b) the cumulative normal rental excess,
for the period of account of the current lessor in which the conditions in paragraph 3 above become satisfied, any amount of relief given for a period of account on a claim under section 41 of the Taxes Act 1988 shall be treated as if it had instead been given under paragraph 8(4) above for that period of account.
14 If—
(a) the conditions in paragraph 3 above become satisfied in the case of the lease of the asset, and
(b) immediately before those conditions became so satisfied, Part II of this Schedule applied in the case of the lease,
then, in determining the cumulative accountancy rental excess or the cumulative normal rental excess for any period of account ending after those conditions become satisfied, this Schedule shall have effect as if this Part of this Schedule had applied in relation to the lease at any time when Part II of this Schedule applied in relation to it.
15 (1) This Part of this Schedule is concerned with arrangements (other than arrangements with which Part I of this Schedule is concerned)—
(a) which involve the lease of an asset;
(b) which are or have been entered into by companies or other persons; and
(c) which are of such a kind as, in the case of companies incorporated in any part of the United Kingdom, falls for the purposes of accounts of such companies to be treated in accordance with normal accountancy practice as finance leases or loans.
(2) The principal purpose of this Part of this Schedule is, in the case of any such arrangements, to charge any person entitled to the lessor’s interest under the lease of the asset to tax from time to time on amounts of income determined by reference to those which fall for accounting purposes to be treated in accordance with normal accountancy practice as the income return, on and after 26th November 1996, on investment in respect of the finance lease or loan (taking into account the substance of the matter as a whole, including in particular the state of affairs as between connected persons, or within a group of companies, as reflected or falling to be reflected in accounts of any of those persons or in consolidated group accounts).
16 (1) This Part of this Schedule applies in any case where—
(a) a lease of an asset is or has been granted on or after 26th November 1996;
(b) the lease forms part of a new scheme;
(c) in the case of the lease, the condition in sub-paragraph (1) of paragraph 3 above is or has been satisfied at some time on or after 26th November 1996 in a period of account of the current lessor; and
(d) Part I of this Schedule does not apply in the case of the lease by reason of the conditions in sub-paragraphs (2) to (5) of that paragraph not all being, or having been, satisfied as mentioned in paragraph 2 above.
(2) Where the condition in paragraph 3(1) above has been satisfied at any time on or after 26th November 1996 in a period of account of the person who was at that time the lessor, it shall be taken to continue to be satisfied unless and until—
(a) the asset ceases to be leased under the lease; or
(b) the lessor’s interest under the lease is assigned to a person who is not connected with any of the persons described in sub-paragraph (3) below.
(3) Those persons are—
(a) the assignor;
(b) any person who was the lessor at some time before the assignment; or
(c) any person who at some time after the assignment becomes the lessor pursuant to arrangements made by a person who was the lessor, or was connected with the lessor, at some time before the assignment.
(4) Nothing in sub-paragraph (2) above prevents this Part of this Schedule from again applying in the case of the lease if the conditions for its application are satisfied after the assignment.
17 Paragraphs 5 to 10 and 12 above shall apply for the purposes of this Part of this Schedule as they apply for the purposes of Part I of this Schedule.
18 In the application of this Schedule in relation to companies carrying on insurance business, “accounting purposes” does not include the purposes of accounts which Part II of the [1982 c. 50.] Insurance Companies Act 1982 (the Department of Trade and Industry rules) requires to be prepared.
19 (1) This paragraph applies if the current lessor is a company carrying on life assurance business.
(2) Where the leased asset is an asset of the company’s long term business fund, no amount shall be brought into account by virtue of this Schedule in any computation of profits of life assurance business, or any class of life assurance business, carried on by the company where the computation is made in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D.
(3) In determining whether the condition in sub-paragraph (3) or (4) of paragraph 3 above is satisfied in the case of the company, an amount shall not be regarded—
(a) as falling to be brought into account for tax purposes as rent which arises to the company from the lease, or to which the company is entitled, in a period of account, or
(b) as representing a portion of that part of a major lump sum which falls within paragraph 3(2)(b) above,
by reason only that it falls to be taken into account for any purpose by virtue of section 83(2) of the [1989 c. 26.] Finance Act 1989 (investment income from, and increases in value of, assets of long term business fund treated as receipts of period).
(4) Where—
(a) under paragraph 5 or 13 above the company is treated for tax purposes as if in a period of account it had been entitled to, and there had arisen to it, any rent from the lease, and
(b) the leased asset is an asset of the company’s long term business fund or is linked to any category of insurance business, and
(c) any question arises for the purposes of the Corporation Tax Acts as to the extent to which that rent is referable to any category of the company’s long term business,
section 432A of the Taxes Act 1988 (apportionment of insurance companies' income) shall have effect in relation to the rent as it has effect in relation to the income arising from an asset.
20 ? For the purposes of this Schedule, the “normal rent” in respect of a lease for a period of account of the lessor is the amount which he would, apart from this Schedule, bring into account as rent from the lease—
(a) which arises to him, and
(b) if rent arising to him from the lease is chargeable to corporation tax under Schedule A, to which he is entitled,
in that period of account for the purpose of determining his liability to tax for the related chargeable period or periods.
21 (1) For the purposes of this Schedule, the “accountancy rental earnings” in respect of the lease for a period of account of the lessor is the greatest of the amounts specified in sub-paragraph (2) below.
(2) Those amounts are—
(a) the rental earnings for the relevant period in respect of the lease, in the case of the lessor;
(b) the rental earnings for the relevant period in respect of the lease, in the case of a person connected with the lessor;
(c) the rental earnings for the relevant period in respect of the lease, for the purposes of consolidated group accounts of a group of companies of which the lessor is a member.
(3) In sub-paragraph (2) above, “the relevant period” means the period of account of the lessor which is mentioned in sub-paragraph (1) above.
22 In this Schedule “the rental earnings” for any period in respect of the lease of the asset is, in the case of any person or any consolidated group accounts, the amount which falls for accounting purposes to be treated in accordance with normal accountancy practice as the gross return for that period on investment in respect of a finance lease or loan in respect of the leasing arrangements.
23 This Schedule shall apply in relation to a period of account which begins before 26th November 1996 and ends on or after that date as if—
(a) so much of the period as falls before 26th November 1996, and
(b) so much of the period as falls on or after that date,
were separate periods of account.
24 (1) This paragraph applies in any case where—
(a) a period of account of the lessor does not coincide with a period of account of a person connected with the lessor, or
(b) a period of account of the lessor does not coincide with a period for which consolidated group accounts of a group of companies of which the lessor is a member fall to be prepared.
(2) Where this paragraph applies, any amount which falls for the purposes of this Schedule to be found for the lessor’s period of account but by reference to the connected person or, as the case may be, the consolidated group accounts shall be found by making such apportionments as may be necessary—
(a) between two or more periods of account of the connected person, or
(b) between two or more periods for which consolidated group accounts of the group fall to be prepared,
as the case may be.
(3) Any apportionment under sub-paragraph (2) above shall be made in proportion to the number of days in the respective periods which fall within the lessor’s period of account.
25 (1) If a person is connected with another at some time during the period which—
(a) begins at the earliest time at which any of the leasing arrangements were made, and
(b) ends when the current lessor finally ceases to have an interest in the asset or any arrangements relating to it,
he shall be treated for the purposes of this Schedule, in its application in consequence of those leasing arrangements, as being connected with that other throughout that period.
(2) Section 839 of the Taxes Act 1988 shall apply for the purposes of this Schedule.
26 For the purposes of this Schedule, the following assets shall be treated as representing the leased asset—
(a) any asset derived from, or created out of, the leased asset;
(b) any asset from or out of which the leased asset was derived or created;
(c) any asset derived from or created out of an asset from or out of which the leased asset was derived or created; or
(d) any asset which derives the whole or a substantial part of its value from the leased asset or from an asset which itself represents the leased asset.
27 (1) For the purposes of this Schedule, a lease of an asset—
(a) forms part of an existing scheme if, and only if, the conditions in sub-paragraph (2) or (3) below are satisfied; and
(b) in any other case, forms part of a new scheme.
(2) The conditions in this sub-paragraph are that—
(a) a contract in writing for the lease of the asset has been made before 26th November 1996;
(b) either—
(i) the contract is unconditional; or
(ii) if the contract is conditional, the conditions have been satisfied before that date; and
(c) no terms remain to be agreed on or after that date.
(3) The conditions in this sub-paragraph are that—
(a) a contract in writing for the lease of the asset has been made before 26th November 1996;
(b) the condition in paragraph (b) or (c) of sub-paragraph (2) above is not satisfied in the case of the contract;
(c) either the contract is unconditional or, if it is conditional, the conditions are satisfied before the end of the finalisation period or within such further period as the Commissioners of Inland Revenue may allow in the particular case;
(d) no terms remain to be agreed after the end of the finalisation period or such further period as the Commissioners of Inland Revenue may allow in the particular case; and
(e) the contract in its final form is not materially different from the contract as it stood when it was made as mentioned in paragraph (a) above.
(4) In sub-paragraph (3) above, “the finalisation period” means the period which ends with the later of—
(a) 31st January 1997;
(b) the expiration of the period of six months next following the day on which the contract was made as mentioned in sub-paragraph (3)(a) above.
28 (1) In the application of any provisions of this Schedule which relate to accounting purposes or normal accountancy practice, it shall be assumed, if it is not the case, that the person who is at any time entitled to the lessor’s interest under the lease of the asset, and any person connected with that person, is a company incorporated in a part of the United Kingdom.
(2) A person who is not in fact a body corporate shall not by virtue of sub-paragraph (1) above be treated as a member of a group of companies for any purpose of this Schedule.
(3) This Schedule shall have effect in relation to a person who, for accounting purposes, is not required to prepare accounts in accordance with normal accountancy practice as if he were required to do so.
(4) Nothing in sub-paragraph (3) above applies in relation to consolidated group accounts.
(5) This Schedule shall have effect in relation to a body corporate (wherever incorporated) which is a parent undertaking but which, for accounting purposes, is not required to prepare consolidated group accounts in accordance with normal accountancy practice as if the body corporate were required to do so.
(6) In sub-paragraph (5) above “parent undertaking” shall be construed in accordance with—
(a) section 258 of the [1985 c. 6.] Companies Act 1985, or
(b) in Northern Ireland, Article 266 of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986.
29 All such assessments and adjustments shall be made as are necessary to give effect to the provisions of this Schedule.
30 (1) In this Schedule, unless the context otherwise requires—
“accountancy rental earnings” has the meaning given by paragraph 21(1) above;
“accountancy rental excess” shall be construed—
for the purposes of Part I of this Schedule, in accordance with paragraph 6 above; and
for the purposes of Part II of this Schedule, in accordance with paragraph 6 above as it has effect by virtue of paragraph 17 above;
“accounting purposes” means the purposes of—
accounts of companies incorporated in any part of the United Kingdom, or
consolidated group accounts for groups all the members of which are companies incorporated in any part of the United Kingdom;
“asset” means any form of property or rights;
“asset representing the leased asset” shall be construed in accordance with paragraph 26 above;
“assignment”, in the application of this Schedule to Scotland, means assignation;
“consolidated group accounts” means group accounts which satisfy the requirements—
of section 227 of the Companies Act 1985, or
in Northern Ireland, of Article 235 of the Companies (Northern Ireland) Order 1986;
“cumulative accountancy rental excess” and “cumulative normal rental excess” shall be construed—
for the purposes of Part I of this Schedule, in accordance with paragraph 6 above; and
for the purposes of Part II of this Schedule, in accordance with paragraph 6 above as it has effect by virtue of paragraph 17 above;
“the current lessor”, in the case of a lease of an asset, means the person who is for the time being entitled to the lessor’s interest under the lease;
“existing scheme” shall be construed in accordance with paragraph 27(1)(a) above;
“finance lessor” means a person who for accounting purposes is treated in accordance with normal accountancy practice as the person with—
the grantor’s interest in relation to a finance lease; or
the lender’s interest in relation to a loan;
“group of companies” means a group as defined—
in section 262(1) of the [1985 c. 6.] Companies Act 1985, or
in Northern Ireland, in Article 270(1) of the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986,
and “member”, in relation to a group of companies, means a company comprised in the group;
“lease”—
in relation to land, includes an underlease, sublease or any tenancy or licence, and any agreement for a lease, underlease, sublease or tenancy or licence and, in the case of land outside the United Kingdom, any interest corresponding to a lease as so defined; and
in relation to any form of property or right other than land, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, an asset;
and “rent” shall be construed accordingly;
“the leasing arrangements”, in the case of a lease of an asset, means—
the lease of the asset,
any arrangements relating to or connected with the lease of the asset, and
any other arrangements of which the lease of the asset forms part,
and includes a reference to any of the leasing arrangements;
“the lessee”, in the case of a lease of an asset, means (except in the expression “the lessee’s interest under the lease”) the person entitled to the lessee’s interest under the lease;
“the lessor”, in the case of a lease of an asset, means (except in the expression “the lessor’s interest under the lease”) the person entitled to the lessor’s interest under the lease;
“major lump sum” shall be construed in accordance with paragraph 3(2) above;
“new scheme” shall be construed in accordance with paragraph 27(1)(b) above;
“normal rent” shall be construed in accordance with paragraph 20 above;
“normal rental excess” shall be construed—
for the purposes of Part I of this Schedule, in accordance with paragraph 6 above; and
for the purposes of Part II of this Schedule, in accordance with paragraph 6 above as it has effect by virtue of paragraph 17 above;
“period of account” means a period for which accounts are made up and, except for the purposes of paragraphs 2 to 4 and 23 above, means such a period which begins on or after 26th November 1996;
“related chargeable period” shall be construed in accordance with sub-paragraph (2) below;
“sum” includes any money or money’s worth (and “pay” and cognate expressions shall be construed accordingly);
“the rental earnings”, in relation to the lease of the asset and any period, has the meaning given by paragraph 22 above.
(2) For the purposes of this Schedule a chargeable period is related to a period of account (and a period of account is related to a chargeable period) if—
(a) the chargeable period is an accounting period which consists of or includes the whole or any part of the period of account; or
(b) the chargeable period is a year of assessment whose basis period for the purposes of Case I or Case II of Schedule D consists of or includes the whole or any part of the period of account.
Finance Act 1997