Corporation Tax Act 2010 section 437C

Present value of a lease

Section 437C explains how to calculate the present value of a lease for the purposes of determining the ascribed value of plant and machinery under section 437A.

• The present value of a lease is based on the amounts payable under the lease after the relevant time, plus any residual amount, but excluding service charges and qualifying UK or foreign tax payable by the lessor.
• The present value must be calculated using the interest rate implicit in the lease, determined by normal commercial criteria and generally accepted accounting practice where applicable; if that rate cannot be determined, the incremental borrowing rate is used instead.
• Where the lessee has an option to extend the lease beyond its initial term and it is reasonably certain at the relevant time that the option will be exercised, amounts payable during the extension period are included in the calculation.
• Where the lease also covers land or assets other than plant or machinery, only the portion of the present value attributable to the plant or machinery — on a just and reasonable apportionment — is taken into account.