Income Tax Act 2007 section 681DE

Hire-purchase agreements

Section 681DE provides relief from the income tax charge on capital sums received in connection with a lessee's interest in a hire-purchase agreement, by allowing certain non-tax-relieved payments and assignment costs to be set against the capital sum.

• Where a lease is a hire-purchase agreement and a capital sum is received for the lessee's interest, the lessee totals up non-tax-deductible lease payments and any capital paid to acquire the interest by assignment — if this total equals or exceeds the capital sum, no income tax charge arises under section 681DD
• If the total of qualifying payments is less than the capital sum, the total is deducted from the capital sum before applying the section 681DD charge, so tax applies only to the excess
• Where the capital sum relates to only part of the lessee's interest, the qualifying payments must be reduced to a just and reasonable proportion, reflecting the extent to which those payments contributed to the value of what was disposed of
• Where the same person receives more than one capital sum in respect of the same lease interest, any payment already used to reduce one capital sum cannot be used again against another, and capital sums are dealt with in the order they were received