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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 D: variation on example, part 2 of 2


Assume now that the facts in the example at BLM70615 are changed slightly (differences in italics):

  • 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 advance on 30 June 1997;
  • the accountancy rental earnings from the lease for the year ended 31 December 1997 are £600.

The rents to which the lessor becomes entitled for 1997 are now £1000 but the spreading mechanism ensures that for the purposes of the comparison required by CTA10/S902(7) the normal rent is 6/12 x £1000 = £500. The effect of spreading therefore is to cause the condition to be satisfied (since the £600 accountancy rental earnings are less than £1000 but more than £500). But, even if the lease is within Part I for 1997, the rents which will be taxable must be determined without any spreading. So the taxable rents are £1000 (the ordinary Schedule A ‘entitlement basis’ measure) since this is not less than the accountancy rental earnings.