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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: legal expenses: incidental to creation of lease

The argument for regarding expenses incidental to the creation of the lease itself as revenue can probably be put in two ways, see BLM37020. The argument for regarding such expenses as capital in nature is explained at BLM37025.

Both revenue arguments start from the proposition that issues of this kind are to be judged in the context of the economic substance of the business in question and without relying too much on the niceties of legal form.

Lord Wilberforce in Strick v Regent Oil, 43 TC 55 (see also BIM35560), said:

‘What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.’