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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: finance lessees: importance of lease term: no secondary period: where secondary period can be inferred

A ‘full payout’ lease is a lease under which the rentals fully repay the lessor’s outlay plus interest. If a ‘full payout’ lease only has a primary period and, exceptionally, has no provision for a rebate of rentals it is reasonable to assume that there must be something that corresponds to a secondary period. For example:

  • the lease may contain a clause providing for the term to be extended;
  • it may be possible to infer the existence of a secondary lease period even if the lease agreement does not explicitly provide for one, particularly if the agreement does not actually specify what happens at the end of the lease period
  • the extension may be provided for in some other way, perhaps in some other agreement.

If it is claimed that there is no explicit or inferred secondary lease period, so that the rentals cannot be spread over any longer period, and yet there is no rental rebate at the end of the lease term even though the asset has high value, seek advice from CTISA (CT&BIT).