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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Computation: IT: finance leases


There are special capital gains rules concerning finance leases in paragraphFA97/SCH12. These rules reduce the capital gains consideration, in certain circumstances,by the `cumulative accountancy rental excess’ as defined for the purposes of the financeleasing provisions. In addition, FA97/SCH12/PARA12 modifies the general rule in TCGA92/S37dealing with the exclusion from capital gains consideration of sums chargeable as income.

The key aim of FA97/SCH12 is to tax as income the `interest’ earnings of finance lessorswhich are shown as earnings in the commercial accounts but which, under previous tax law,were technically treated as capital gains covered by indexation and other capital gainsreliefs. Having taxed these former capital gains as income paragraph 12 Schedule 12provides consequential rules to ensure that the same amounts are not taxed again as gains.

Detailed guidance on FA97/SCH12, including the capital gains rules, can be found in theFinance Leasing Manual.