§ The second measure relates to a new and serious form of tax avoidance, involving the use of leasing devices. One device is for a trader who owns business premises to lease them for a long period to a dealing concern in consideration of a premium which is not taxable, and to take a lease back from the dealer. In the first few years of the lease-back he pays excessive rent sufficient to recoup the dealer for the premium. The rent is deductible by the trader for tax purposes but, although the rent constitutes a trading receipt of the dealer, he is able to set against it the countervailing diminution in value of the lease, so that little tax is payable. The revenue suffers a loss. The lease can be determined prematurely and the device repeated with the same property.
§ Another device is for new plant to be leased to a trader with rent loaded into the early years sufficient to cover the capital cost of the plant. The rent for the later years of the lease is trifling, so that when the high rents have been paid and allowed for tax purposes the trader 244 is in possession of the right to use the plant for the rest of the lease at little cost. He can sell this right for a nontaxable capital sum; or if the sale is to a dealer can carry out a lease-back transaction similar to that which I have described for buildings.
§ These schemes are being promoted by people seeking to induce traders to adopt them, and the potential loss of revenue is very great. The countermeasures I shall bring forward in the Finance Bill will vary with different types of transaction. They will be designed to stop a profit being made out of tax by avoidance schemes, but will not penalise normal leasing arrangements. They will operate as regards transactions entered into after today.