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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Bad debts: where the normal rent is taxed

Where in the case of a lease:

  • accountancy rental earnings do not exceed the normal rent (so that the normal rent is taxed); and
  • a bad debt deduction is given,

two consequences follow. (CTA10/S911(3)-(5)).

First, the limit on the amount of any cumulative accountancy rental excess brought forward which can be set against the normal rent is the excess of the normal rent over the bad debt deduction (Section 911(4)).

Second, the cumulative accountancy rental excess carried forward is reduced by any excess of the bad debt deduction over the normal rent (Section 911(5)).

The two consequences are illustrated by an example at BLM74030.