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HMRC internal manual

Business Leasing Manual

Taxation of long funding leases: long funding finance lessors: exceptional items

Some profits or losses arising under a lease may not be accounted for through rental earnings or as interest. CTA10/S361 applies to a profit or loss (whether capital or revenue in nature) that

  • arises in connection with the lease, and
  • falls to be recognised as a profit or loss under GAAP (BLM40120), and
  • would not otherwise be brought into account for tax purposes.

Where this is the case any profit is treated as income attributable to the lease. Therefore if the rental earnings would be taxed as trading income, so is the exceptional profit. But if, for example, the rental earnings would be taxed as property income (as may be the case with fixtures) the exceptional profit would also fall to be taxed property income.

Note that it does not matter whether the profit has been realised in the sense that money etc may have been received: what matters is that it has been recognised for accounting purposes.

Similar principles apply to a loss, which is treated as if it were revenue expenditure incurred in connection with the lease.

See example at BLM40125.