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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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’Income-into-capital’ schemes and back loaded leases: 'Income-into-capital' schemes: example, part 3 of 5 - lessor's tax treatment

Example

The crucial benefit underpinning an income-into-capital scheme is that although the option excess is recognised as income it is not taxed as such. The tax computation omits the £30m of ‘interest’ in the £100m option price.

In tax terms Bank (the lessor) does not make a profit in any year. As can be seen from the tax computation below the tax losses amount to £23m which, at 33%, means that Bank can shelter £7.6m of their other profits from the Exchequer. The tax computation looks like this:

In £millions

Year 1 2 3 4 5 6 7 8 Total
                   
Rent income   3 4 5 6 7 7 8 40
Expense   -9 -9 -9 -9 -9 -9 -9 -63
Profit/(Loss)   -6 -5 -4 -3 -2 -2 -1 -23