Corporation Tax Act 2010 section 369

Lessor under long funding operating lease: termination of lease

Section 369 provides for the lessor of a long funding operating lease to be treated as receiving taxable income or incurring a deductible revenue expense when the lease terminates, depending on how the termination amount compares with certain specified amounts.

• When the termination amount exceeds the total of amounts paid to the lessee by reference to termination value, the excess relevant value for section 363, and the excess expenditure for section 366, the surplus is treated as taxable income of the lessor in the period the lease ends.
• When those combined amounts instead exceed the termination amount, the surplus is treated as a deductible revenue expense of the lessor in the period the lease ends.
• Amounts paid to the lessee that are calculated by reference to the termination value cannot themselves be deducted for tax purposes.
• The excess relevant value for section 363 and the excess expenditure for section 366 each represent unrelieved balances — the difference between starting values or capital expenditure on one hand and cumulative deductions already claimed on the other.