Capital Allowances Act 2001 section 228K

Disposal of plant or machinery subject to lease where income retained

Section 228K sets out how to calculate the disposal value when a lessor sells leased plant or machinery but keeps the right to receive some or all of the remaining rental income under the lease.

• When a lessor disposes of leased plant or machinery but retains entitlement to future rental payments, the disposal value brought into account must reflect both the sale proceeds and the retained rental stream.
• If the sale consideration exceeds the normal statutory cap on disposal values, the cap is disapplied and the full consideration becomes the disposal value.
• Otherwise, the disposal value is the sale consideration plus the net present value of the retained rentals, subject to the normal statutory cap.
• To prevent double counting, any rental income whose value has already been included in the disposal value is excluded from the lessor's taxable leasing income.