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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: Condition C: investment return not taxable as a normal rent

The condition CTA10/902(6) is intended to exclude cases where the whole, of what represents return on investment in a major lump sum, is taxable as rental income. In such a case there is no prospect that the ‘interest’ on the lessor’s outlay on the leased asset (in substance a loan) will be received in capital form.

You should note the following detailed points:

  • the condition is not met (so that the lease is excluded from Part 21) only if it is the lessor who is taxable in this way - a connected person will not do;
  • all the return in the major lump sum must be taxable in the form of ‘normal rent’ - this is explained in BLM70600;
  • it must all be taxable for accounting periods ending with the one in which the period of account, in which the major lump sum may be paid, falls (or by the latest year of assessment for which that period of account is the basis period in an income tax case) - CTA10/S903(1).