BLM00535 - Introduction: Lease taxation: Lease not Long Funding Lease: Finance lessors (detail)

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

For the tax treatment of the 'interest' element in the rentals, the aim is to follow the accountancy. As in other situations, the accountancy often provides a ready-made measure of the income for tax purposes - however, in this case, accountancy only provides a measure of part of a finance lessor’s income.

For the tax treatment of the ‘capital’ element in the rentals, there is no accountancy model which can be followed. Unless the lease is a long funding lease the capital element in the rentals is income for tax purposes, but for accountancy purposes it is loan repayment and a balance sheet item.

You should also be aware of the rules in Part 21 CTA 2010 / Part 11A ITA 2007. These are covered in detail at BLM70000 and counter

  • arrangements that turn what would normally be the lessor’s rental income into a capital gain
  • arrangements that deferred the recognition of income for tax purposes, thus producing a mismatch between the commercial accounts earnings and the tax earnings.

In addition there are rules that in some circumstances restrict the taxable element of a finance lessor’s income in the case of a sale and finance leaseback and lease and finance leaseback, see CA28000 and CA28900 onwards.

Further details are at BLM33015.