’Income-into-capital’ schemes and back loaded leases: 'Income-into-capital' schemes: example, part 3 of 5 - lessor's tax treatment
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: