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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 CTA 2010 lease: Condition A: different treatment in group consolidated accounts

There may be cases where the lease is correctly treated as an operating lease from the perspective of the lessor but from the wider group perspective is regarded as a finance lease. CTA10/S902(3)-(4) provide that leasing arrangements are to be regarded as a finance lease (and the Condition A satisfied) if they should be treated as such in group consolidated accounts reflecting the arrangements, drawn up under GAAP.

This rule in CTA10/S902(3)-(4) is aimed particularly at cases where the exit arrangements under the lease do not involve the lessor in the disposal of the leased asset but instead the lessor’s parent company may sell the issued share capital of the lessor to a member of the lessee group for a price which enables the lessor group to make overall a normal finance lessor’s profit. Such deals are uncommon because they are likely to involve ‘arrangements’ put in place at the start of the lease which come within the group relief anti-avoidance provisions in CTA10/S154-156. Those provisions prevent the lessor company from surrendering trading losses etc as group relief.