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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: Relief for set-offs against rentals: cumulative normal rental excess: provisions for set-off

The provisions for the set-off of cumulative normal rental excess are intended to ensure that ‘negative depreciation’ (being the excess of accountancy rental earnings over normal rent) (see BLM70845) is not recognised for tax (through the taxation of accountancy rental earnings) if at the end of a period of account the balance outstanding to the lessor in respect of a lease is less than the lessor’s original outlay. In other words, ‘negative depreciation’ arising in a period is not taxed if the overall balance of depreciation on the lease is positive. And where the overall balance at the end of a period of account is negative, the charge on the negative depreciation arising in a period cannot exceed that overall balance.