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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: definition of 'normal rent'

‘Normal rent’ from a lease is defined in CTA10/S896 as the sums which would be taxable as rent on the lessor under tax law apart from Part 21. HMRC gave guidance on this definition, specifically in the context of this third condition, in the article on Schedule 12 (now Part 21 of CTA 2010) published in the April 1997 issue of Tax Bulletin:

`Definition of lease within Part I-condition in paragraph 3(3) Schedule 12 : This condition is satisfied if part or all of the element of a major lump sum which constitutes return on investment (see above) is not ‘normal rent’ for tax purposes. So long as they are taxable revenue items on first principles, we would regard termination receipts and other sums representing consideration for the hire of the asset as ‘normal rent’ within paragraph 20 Schedule 12 and therefore within paragraph 3(3). This is the case whether or not such sums are described as rentals in the relevant documentation. By ‘first principles’ we mean the basic charging rules of Schedule A [property income] or Schedule D [trading income] as opposed to special rules, such as the Schedule A premium rules.`