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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Introduction: Lease taxation: Lease not Long Funding Lease: Finance lessors (detail)

For the tax treatment of the ‘interest’ element in the rentals, the aim is to follow the accountancy. As in other situations, the accountancy often provides a ready-made measure of the income for tax purposes - however, in this case, accountancy only provides a measure of part of a finance lessor’s income.

For the tax treatment of the ‘capital’ element in the rentals, there is no accountancy model which can be followed. Unless the lease is a long funding lease the capital element in the rentals is income for tax purposes, but for accountancy purposes it is loan repayment and a balance sheet item.

You should also be aware of the rules in Part 21 CTA 2010 / Part 11A ITA 2007. These are covered in detail at BLM70000 and counter

  • arrangements that turn what would normally be the lessor’s rental income into a capital gain
  • arrangements that deferred the recognition of income for tax purposes, thus producing a mismatch between the commercial accounts earnings and the tax earnings.

In addition there are rules that in some circumstances restrict the taxable element of a finance lessor’s income in the case of a sale and finance leaseback and lease and finance leaseback, see CA28000 and CA28900 onwards.

Further details are at BLM33015.