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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 E: 'arrangements' and 'circumstances' - general approach

HMRC gave the following description of the fifth condition, and guidance on how it is to be operated, 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(5) Schedule 12 (now CTA`10/S902(8): This condition is satisfied principally where the lessee, or a connected person of his, may acquire the leased asset for a sum which includes what for accountancy purposes is part of the lessor’s return on the investment in the lease (see the discussion of paragraph 3(2) of Schedule 12 above (now CTA10/S902)1)) in either of two circumstances. Either such an acquisition has to be under ‘arrangements’ existing at the time the application of the five conditions is considered; or it must be more likely that the lessee (or a connected person) will acquire the asset for such a sum than that an unconnected person will acquire it at open market value.

In applying this test we would not seek to identify some brief period in the course of subsequent negotiations for the disposal of the asset to the lessee or a connected person when such likelihood could be said to exist. For example, if the leasing arrangements are made in 1995 we would not say that negotiations in 2005 for a previously unplanned disposal in 2005 cause this test to be satisfied`