Income Tax Act 2007 section 614BH

Meaning of "accountancy rental excess" and "cumulative accountancy rental excess"

Section 614BH defines the terms "accountancy rental excess" and "cumulative accountancy rental excess", which are used to track timing differences between accountancy-based rental earnings and normal rent in the context of finance leases with a return in capital form.

• An accountancy rental excess arises in any period where the lessor is taxed on accountancy rental earnings and those earnings exceed the normal rent for that period.
• If the taxable rent has been reduced by a cumulative normal rental excess, an accountancy rental excess only arises to the extent the reduced accountancy rental earnings still exceed the normal rent.
• The cumulative accountancy rental excess is the running total of all previous accountancy rental excesses, adjusted for bad debt recoveries, after deducting amounts already set off against taxable rent, reduced for bad debt relief, or set off against disposal consideration for capital gains purposes.
• These definitions ensure that over the life of a lease, the lessor is taxed on neither more nor less than the true economic rental income, with timing differences tracked and unwound through the cumulative excess mechanism.