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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Taxation of leases that are not long funding leases: finance lessees: general issues: guarantee fees

Guarantee fees are more likely to arise where the leased asset may not be adequate security for rents due under the finance lease (for example where there are back-loaded rents; any case structured so that the value of the lease commitments exceeds the book value of asset; and certain examples of cross-border ‘inward leasing’). In these and other situations you may find that the lease is guaranteed and that the lessee pays guarantee fees. If such fees arise under a guarantee entered into in order to secure the funding or the lease, the fees paid may be capital in nature (see Ascot Gas Water Heaters Ltd v Duff, 24TC171, BIM35580).

The Special Commissioners, in Caledonian Paper plc v CIR (SpC 159/1998), drew a distinction between

  • a management fee which contributed to the securing of a finance lease (a capital asset, and so capital expenditure), and
  • other recurring payments, which were not installments of consideration for the acquisition of a capital asset (and so revenue expenditure).

The nature of the advantage the other payments secured for the taxpayer was the continuation of the lease, an advantage similar to that secured by the regular payments of rent (revenue expenditure).