BLM74315 - 鈥橧ncome-into-capital鈥� schemes and back loaded leases: Lease changes: 鈥榥ew鈥� operating lease becomes a finance lease
Whenever a 鈥榩ost-25 November 1996鈥� lease, initially treated as an operating lease, is reclassified as a finance lease (or loan), whether because its terms change or because accountants change their view of it, the rules in Part 21 of CTA 2010 (Chapter 2 or Chapter 3 as the case may be) apply from that point. For the reasons set out in the next paragraph no 鈥榗umulative excesses鈥� (see BLM72001) are brought forward from earlier periods when the lease was classified as an operating lease.
No 鈥榗umulative excesses鈥� are brought forward from earlier periods because, by definition, 鈥榓ccountancy rental earnings鈥� cannot be derived from an operating lease. The underlying definition of 鈥榬ental earnings鈥� is the income derived from what accountants regard as a finance lease or loan. By virtue of CTA10/S909(1) a normal rental excess can only arise in a period of account in which a lease is classified as a finance lease (or loan).