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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Capital allowances: disposal proceeds more than cost of asset

The provisions in CTA10/SS916-922 are triggered by the occurrence of an occasion on which a ‘major lump sum’, as defined in Condition B at CTA10/S902(5), becomes payable (see BLM73005). On such an occasion the major lump sum is brought into account in order to recapture any statutory allowance for capital expenditure on the leased asset concerned. Since such allowances cannot be given on more than the cost of the asset there are rules in Sections 916-922 to ensure that any excess of the major lump sum over the cost of the leased asset qualifying for allowances is left out of account.

In general, no further rules are needed to ensure that the same sums are not brought into account twice - for example, once under ‘negative depreciation’ (BLM70845) effectively charged to tax under CTA10/S905 and once under the disposal adjustment rules for capital allowances, as extended by Sections 916-922. This is because there is no overlap between the sums involved. ‘Negative depreciation’ is reflected in the proceeds obtained from the disposal of a leased asset in excess of the lessor’s original investment in that asset. That excess is excluded from the disposal proceeds taken into account for capital allowances.