Corporation Tax Act 2010 section 902

The conditions referred to in section 901(1)

Section 902 sets out the five conditions (A to E) that must all be met for Chapter 2 (finance leases with a return in capital form) to apply to a particular leasing arrangement.

• The lease must be classified as a finance lease or loan under generally accepted accounting practice (GAAP), with the lessor or a connected person recognised as the finance lessor or the arrangement appearing in consolidated group accounts.
• A significant non-rent lump sum (a "major lump sum") must be payable to the lessor or a connected person, part of which GAAP treats as repayment of investment and part as a return on investment in respect of the finance lease or loan.
• The return-on-investment element of that lump sum would not otherwise be fully brought into account for corporation tax as normal rental income, and in some period the lessor's accountancy rental earnings must exceed the normal rent — indicating the lease terms are designed to convert rental income into a capital receipt.
• There must be arrangements or circumstances making it likely that the lessee or a connected person will buy out the lessor's interest for a major lump sum, rather than the sum arising from an unrelated event such as an unplanned third-party sale or an insurance claim.

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