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HMRC internal manual

Business Leasing Manual

‘Income-into-capital’ schemes and back loaded leases: Definition of a Chapter 2 of Part 21 of CTA 2010 lease: the five conditions

In outline the five conditions to be satisfied by a Chapter 2 of Part 21 of CTA 2010 lease are:

  1. Condition A - the lease must be treated as a finance lease for accounting purposes (CTA10/S902(2)-(4) see BLM70426);
  2. Condition B - the leasing arrangements must be such that under them the lessor is capable of receiving a sum which is not rent and which for accounting purposes represents in part the lessor’s investment in the lease and in part the lessor’s return on that investment (CTA10/S902(5) - see BLM70516);
  3. Condition C - not all of the return on investment element (see previous bullet) of that lump sum will be brought into account as ‘normal rent’, that is rent taxable apart from Part 21 (CTA10/S902(6) - see BLM70551);
  4. Condition D - the accountancy rental earnings (the ‘interest’ on the ‘loan’ described as ‘gross earnings’ from the lease under SSAP 21, and described as ‘finance income’ in FRS101, FRS102 and in IFRS) must have exceeded the ‘normal rent’ for a current or previous period (CTA10/S902(7) and S903 - see BLM70561); and
  5. Condition E - there must be a real possibility that:
* either the lessor may sell the leased asset to the lessee for a sum which for accounting purposes represents, in part at least, a return on the lessor's investment or
* a transaction which in substance amounts to much the same thing may be carried out (CTA10/S902(8) and S904 - see BLM70641).