Plant and machinery capital allowance anti-avoidance provisions to be included in Finance Bill 2015 were announced on 26 February 2015 and take effect from that date.

The draft clause and schedule amend part 2 of the Capital Allowances Act 2001 about anti-avoidance rules for transactions between connected parties or sale or leaseback transactions. The provisions target structures in which a taxpayer could create a capital allowances entitlement without having incurred either capital or revenue expenditure.

HMRC recently became aware of proposed sale and leaseback transactions for plant and machinery. It is contended that the effect of the sale and leaseback is to create substantial capital allowances on assets that previously entitled the owner to no allowances.

The explanatory note gives examples of where the new restriction will apply, including statutory transfers of property and cases where another person meets a cost. HMRC state that the new restriction does not apply where a taxpayer is gifted an asset. Prior to this announcement, taxpayers with this fact pattern could sell or transfer plant and machinery assets to another person and lease them back under a long funding lease or Hire Purchase contract. This would give the taxpayer entitlement to capital allowances on market value.

The proposed new rules introduce a further cap of nil to limit qualifying expenditure in these cases. The nil cap applies where the transferor acquired the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure.