Revenue and Customs Brief 40/07
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Issued 24 May 2007
Overseas leasing – sections 109 and 110 Capital Allowances Act 2001 – leases
entered into before 1 April 2006
Chapter 11 of Part 2 of the Capital Allowances Act 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
- where section 109 applies the rate of writing down allowances is reduced
from 25% to 10%, but
- where section 110 applies no capital allowances are available.
We are aware of arguments that these rules are contrary to Community law. In
particular it is argued that they constitute an unlawful restriction on the
freedom to provide services. We now accept that in some circumstances these
rules may be contrary to Community law and we have decided not to contest
Therefore, where plant or machinery is used for overseas leasing and the
lessee is resident in an EEA country we will adopt the following approach:
- where the relevant EEA country gives the lessee a relief that is broadly
equivalent to capital allowances, we will apply s.109 to restrict the rate of
writing down allowances to 10% but we will not apply s.110;
- where the relevant EEA country does not give the lessee a relief broadly
equivalent to capital allowances we 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 Finance Act 2006 the overseas leasing rules do not
apply to leases entered into on or after 1 April 2006.
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Article Published/Sorted/Amended on Scopulus 2007-05-24 20:41:53 in Tax Articles