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Overseas leasing
Chapter 11 of Part 2 of the Capital Allowances Act 2001 contains rules in connection with leasing plant or machinery to lessees based outside the UK. Sections 109 and 110 restrict the amount of writing down allowances that may be claimed:
Overseas leasing
Chapter 11 of Part 2 of the Capital Allowances Act 2001 contains rules in connection with leasing plant or machinery to lessees based outside the UK. Sections 109 and 110 restrict the amount of writing down allowances that may be claimed:
- where s 109 applies, the rate of writing down allowances is reduced from 25% to 10%, but
- where s 110 applies, no capital allowances are available.
HMRC are aware of arguments that these rules are contrary to EU law, in particular that they constitute an unlawful restriction on the freedom to provide services. HMRC now accept that in some circumstances these rules may be contrary to EU law and have decided not to contest certain claims.
Therefore, where plant or machinery is used for overseas leasing and the lessee is resident in an European Economic Area country they will adopt the following approach:
- where the relevant EEA country gives the lessee a relief that is broadly equivalent to capital allowances, they will apply s 109 to restrict the rate of writing down allowances to 10% but they will not apply s 110;
- where the relevant EEA country does not give the lessee a relief broadly equivalent to capital allowances, they will accept that the lessor is entitled to the normal 25% rate of writing down allowances.
CT & VAT will be giving detailed advice to Inspectors on the circumstances in which a lessor leasing to a foreign lessee is entitled to capital allowances at the 25% or 10% rate and on how to settle outstanding cases.
Following changes made in FA 2006, the overseas leasing rules do not apply to leases entered into on or after 1 April 2006.
HMRC Brief 40/07, 24 May 2007
