BLM70415 - 鈥業ncome-into-capital鈥� schemes and back loaded leases: Definition of a Chapter 2 of Part 21 of CTA 2010 lease: the five conditions

In outline the five conditions to be satisfied by a Chapter 2 of Part 21 of CTA 2010 lease are:

  1. Condition A - the lease must be treated as a finance lease for accounting purposes (CTA10/S902(2)-(4) see BLM70426);
  2. Condition B - the leasing arrangements must be such that under them the lessor is capable of receiving a sum which is not rent and which for accounting purposes represents in part the lessor鈥檚 investment in the lease and in part the lessor鈥檚 return on that investment (CTA10/S902(5) - see BLM70516);
  3. Condition C - not all of the return on investment element (see previous bullet) of that lump sum will be brought into account as 鈥榥ormal rent鈥�, that is rent taxable apart from Part 21 (CTA10/S902(6) - see BLM70551);
  4. Condition D - the accountancy rental earnings (the 鈥榠nterest鈥� on the 鈥榣oan鈥� described as 鈥榞ross earnings鈥� from the lease under SSAP 21, and described as 鈥榝inance income鈥� in FRS101, FRS102 and in IFRS) must have exceeded the 鈥榥ormal rent鈥� for a current or previous period (CTA10/S902(7) and S903 - see BLM70561); and
  5. Condition E - there must be a real possibility that:
  • either the lessor may sell the leased asset to the lessee for a sum which for accounting purposes represents, in part at least, a return on the lessor鈥檚 investment or
  • a transaction which in substance amounts to much the same thing may be carried out (CTA10/S902(8) and S904 - see BLM70641).