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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: lease changes: catching-up charge - terms of 'existing' finance lease changed

The principal targets of the catching-up charge in CTA10/S923 are ‘pre-26 November 1996’ finance leases (which would come within Chapter 3 of Part 21 of CTA 2010 if they were ‘post-25 November 1996’ leases) where the leasing arrangements are changed late in the term of the lease to enable the lessor to be partly paid out by a ‘major lump sum’ rather than by means of rentals. A major lump sum is a sum which is regarded for accountancy purposes as comprising not only the repayment of the lessor’s investment but also ‘interest’ on it (see BLM70516 onwards). If Chapter 2 of Part 21 of CTA 2010 was simply applied to ‘accountancy rental earnings’ accruing prior to the change in the arrangements which caused the lease to come within Chapter 2, a substantial amount of rental income accruing prior to the change could be turned into capital.