The Upper Tribunal rejected an appeal from HMRC against a capital allowance claim in a recent decision involving Lloyds TSB Equipment Leasing. The claim related to finance leases in relation to two liquid natural gas (LNG) vessels that were leased to a joint venture company. Lloyds was the lessor of the vessels.
HMRC rejected the claim for capital allowances under specific anti-avoidance provisions contained in the overseas leasing legislation. This applied if the main object or one of the main objects, of the transaction or series of transactions was to obtain capital allowances on the expenditure by the lessor.
It was held by the First Tier Tribunal that although obtaining capital allowances was an objective of the transactions this was not the key purpose. Obtaining capital allowances was subservient to the commercial purpose of the transactions. That decision has now been upheld by the Upper Tribunal on appeal.
