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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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‘Income-into-capital’ schemes and back loaded leases: Definition of a Chapter 2 of Part 21 of CTA 2010 lease: Condition B: the major lump sum

The second of the five conditions which must be satisfied before a lease comes within Chapter 2 of Part 21 of CTA 2010 targets directly the mischief at which Chapter 2 is aimed, namely the capacity of some finance leases to give the lessor a return on its investment which takes the form of capital rather than rental income.

The condition is that under the leasing arrangements (see BLM70520) there may be payable to the lessor or a connected person a sum which is not rent but which under GAAP is treated:

  • in part as repayment of some or all of the investment in respect of the finance lease (or loan); and
  • in part as return on that investment (CTA10/S902(5)).

That sum is referred to as a ‘major lump sum’. The following features of this condition are considered below:

  • leasing arrangements - see BLM70520;
  • payments to connected person - see BLM70525;
  • exclusion of rent - see BLM70530;
  • repayment of investment - see BLM70535;
  • inclusion of return on investment - see BLM70540.