BLM71310 - ’Income-into-capital’ schemes and back loaded leases: 'Income-into-capital' schemes: example, part 3 of 5 - lessor's tax treatment

Example

The crucial benefit underpinning an income-into-capital scheme is that although the option excess is recognised as income it is not taxed as such. The tax computation omits the £30m of ‘interest’ in the £100m option price.

In tax terms Bank (the lessor) does not make a profit in any year. As can be seen from the tax computation below the tax losses amount to £23m which, at 33%, means that Bank can shelter £7.6m of their other profits from the Exchequer. The tax computation looks like this:

In £millions

Year	1	2	3	4	5	6	7	8	Total
Rent income	0	3	4	5	6	7	7	8	40
Expense	0	-9	-9	-9	-9	-9	-9	-9	-63
Profit/(Loss)	0	-6	-5	-4	-3	-2	-2	-1	-23