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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Relief for set-offs against rentals: cumulative normal rental excess: mechanics of relief

The mechanics of relief for cumulative normal rental excess are a mirror image of the mechanics of the relief for cumulative accountancy rental excess and are to be found in CTA10/S910:

  • The excess of normal rent over accountancy rental earnings for any period of account is described as the ‘normal rental excess’ (CTA10/S909(1)).
  • It is added to any such excesses for previous periods of account (beginning with the period deemed to start on 26 November 1996) to arrive at the ‘cumulative normal rental excess’ carried forward to later periods (CTA10/S909(5)).
  • If for any later period the accountancy rental earnings exceed normal rent (and are therefore taxable) the cumulative normal rental excess brought forward from earlier periods may be set against the accountancy rental earnings.
  • The cumulative normal rental excess carried forward to later periods is then reduced by the amount of the set off.
  • The amount of cumulative normal rental excess set off in this way cannot be greater than the excess of accountancy rental earnings over the normal rent for the period for which the relief is given. The effect of this restriction is that the net accountancy rental earnings taxable for the period cannot be less than the normal rent. (CTA10/S910).

Any cumulative normal rental excess which is not set off against accountancy rental earnings in this way cannot be used in any other way. This is an important difference between the treatment of normal rental excesses and accountancy rental excesses.