Taxes Consolidation Act 1997 section 404

Restriction on use of capital allowances for certain leased machinery or plant

Section 404 ring-fences capital allowances on machinery or plant let under a "relevant lease" to income from that same lease, preventing lessors from using accelerated allowances to shelter income from unrelated activities.

• A lease is a "relevant lease" if the lease payments are not broadly evenly spread over the primary lease period; an "even lease" — one where income is recognised on a straight-line basis for tax purposes — is excluded from these restrictions entirely.
• Capital allowances on assets let under a relevant lease are ring-fenced and may only be offset against income from that specific lease, not against general leasing income or income from other trades.
• Corporate lessors must aggregate all their relevant (balloon) leasing trades into a single "balloon leasing trade"; losses from that combined trade can only be offset against balloon leasing income within the same company, with no group relief or value-basis relief available.
• Special rules modify the application of the ring-fence for agricultural machinery, restructured leases, and sale and leaseback arrangements; and certain leases predating 23 December 1993 are excluded from the section altogether.