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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 D: exception to CT property income spreading rule

The exception to the general CT property income spreading rule (see BLM70605) was that a payment of rent was not spread if it fell due more than twelve months after the beginning of the rental period to which it related and over which it would otherwise have been spread. The point here is that the spreading mechanism applies purely for the purposes of making the comparison required by CTA10/S902(7). If the lease does not come within Part I for the period of account, the rents are taxed for that period on the ‘accounts’ basis. Furthermore, if the lease does come within Part I for the period of account the ‘normal rent’ for the purpose of the charging Section are also the rents taxable on the ‘accounts’ basis.

The purpose of the exception is therefore to forestall the writing of leases where rents are payable in arrears at intervals of more than twelve months. Otherwise such leases could be used to arrange for the tax measure of rents to lag well behind the accountancy measure without causing the condition in CTA10/S902(7) to be satisfied.