Corporation Tax Act 2010 section 362

Lessor under long funding finance lease making termination payment

Section 362 deals with the tax treatment of payments made by a lessor to a lessee when a long funding finance lease terminates, specifically preventing the lessor from claiming a corporation tax deduction for such payments.

• When a long funding finance lease ends, the lessor often makes a "rebate of rentals" payment to the lessee, reflecting partial reimbursement of capital payments the lessee had made during the lease
• This termination payment, calculated by reference to the termination value, cannot be deducted by the lessor when calculating its profits for corporation tax purposes
• An exception applies where the payment has already been brought into account in determining the lessor's rental earnings — in that case, a deduction is still permitted
• The definition of "termination value" is found in section 381(3)(m) of the Corporation Tax Act 2010