CG44126 - Targeted rules to prevent income to capital converter schemes by companies - arrangements the legislation will not catch

TCGA92/S184G to I are targeted at contrived arrangements that seek to use capital losses to reduce income profits. It is not intended that the legislation will be used to restrict companies’ ability to make use of normal commercial practices which may happen to have some characteristics in common with the targeted arrangements.

As mentioned in CG44125 it is unlikely that normal sale and lease back transactions, used by companies to provide funding for their business from an unconnected third party, will be caught i.e., the fact that a company incurs an ongoing rent charge, deductible against its profits, will not in itself be enough to bring the arrangements within the legislation. There would need to be a tax avoidance main purpose and in this situation it is unlikely that this would be present.

Additional certainty is provided by the legislation as there is an explicit carve out for the sale and lease back of real property with unconnected parties. Where similar commercial considerations apply, then HMRC will follow this practice in similar transactions, unless there are other factors to the arrangements that suggest the use of capital losses is integral to obtaining a wider tax advantage.