HMRC has published a draft clause and schedule, Tax Information and Impact Note (TIIN), and explanatory note on amendments to the Capital Allowances Act 2001, part 2, to close a tax avoidance loophole.

HMRC recently became aware of proposed sale and leaseback transactions for plant and machinery which had the effect of creating substantial capital allowances on assets that previously entitled the owner to no allowances.

The draft clause and schedule, to take effect from 26 February 2015, will remove this opportunity for avoidance.

It clarifies that where a person acquires an item of plant and machinery without incurring capital expenditure, the expenditure qualifying for capital allowances following certain types of transaction will now be restricted to nil unless the plant or machinery was acquired for revenue expenditure or on its manufacture, at an arm’s length price.

This anti-avoidance rule will affect connected party transactions, sale and leaseback transactions, transfer and subsequent hire-purchase or transfer and long funding leaseback transactions.

The draft clause and schedule are available here

Accompanying explanatory note is available here 

The TIIN is available here