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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: example of CT property income spreading rule, a worked example - part 1 of 2


An example of the way the general spreading rule works:

  • a period of account of a lessor company runs for the year to 31 December 1997;
  • the company has been in business for some years and the lease in question was granted on 1 July 1997;
  • rent of £1,000 is due annually in arrears on 30 June 1998;
  • the accountancy rental earnings from the lease for the year ended 31 December 1997 are £400.

To see whether the condition in CTA10/S902(7) is satisfied for 1997 you need to compare the accountancy rental earnings of £400 with the normal rent. The rents taxable for 1998 under the property income ‘entitlement basis’ are nil but the spreading mechanism ensures that for this purpose the lessor is treated as becoming entitled to rent for 1997 on the assumption that the rent of £1000 is spread evenly over the period from 1 July 1997 to 31 December 1997. That is 6/12 x £1000 = £500. Since £500 is more than £400 the condition in CTA10/S902(7) is not satisfied.

If in the example above the accountancy rental earnings for 1998 had been £600, then the condition would have been satisfied (because £600 is more than £500).