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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: mechanics of relief - a worked example


For most leases there is no need to keep track of cumulative normal rental excesses. But the way the relief for cumulative normal rental excess (‘CNRE’) works and how it interacts with cumulative accountancy excess (‘CARE’) is illustrated in the following table:

  Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Total
Normal rent 100 100 105 105 130 115 655
ARE 90 95 110 120 120 120 655
Taxable before relief for excess 100 100 110 120 120 120  
Relief for CNRE     5 10   5  
Relief for CARE         5    
Net taxable 100 100 105 110 125 115 655
CNRE c/f 10 15 10 - 5 -  
CARE c/f       5 - -  

In this example:

  • For the first two years, normal rent exceeds accountancy rental earning (ARE) and a CNRE of 15 builds up.
  • In year 3, ARE exceeds normal rent, so relief is available for the CNRE - this is restricted to 5 to ensure that not less than the normal rent is recognised; the balance of the excess (15 - 5 = 10) is carried forward.
  • In year 4, ARE exceeds normal rent by 15, which is more than the CNRE brought forward of 10. So 10 is set against the accountancy rental earnings and there is no balance of CNRE to carry forward. Instead there is a CARE to carry forward, which is calculated by first reducing the ARE (120) by the CNRE set off (10) under CTA10/S910 and then by deducting from the result (110) the normal rent (105), to give CARE to carry forward of 5.
  • In year 5, the excess of normal rental over ARE is 10 (130 - 120). As this is more than the CARE brought forward (5) the whole of the excess can be set against the normal rent. CNRE can be carried forward. This is calculated by first reducing the normal rent (130) by the CARE brought forward (5) under CTA10/S908 and then by deducting from the result (125) the ARE (120) to give CNRE carried forward of 5.
  • In year 6, the CNRE excess brought forward is not more than the excess of ARE over normal rent and so can be wholly set off.

In this example, the totals of the amounts taxable, the ARE and the normal rent are all the same and there is no cumulative excess; either of normal rent or ARE to carry forward. If the ARE had exceeded the normal rent, the excess would have been equal to the CARE carried forward and vice versa.