Income Tax (Trading and Other Income) Act 2005 section 148C

Lessor under long funding finance lease making termination payment

Section 148C restricts the deductions a lessor can claim when making a termination payment to a lessee under a long funding finance lease.

• This section applies to anyone carrying on a trade who is or has been the lessor under a long funding finance lease
• Where a lease terminates and a payment calculated by reference to the termination value is made to the lessee, the lessor cannot deduct that payment when calculating trading profits
• An exception exists where the payment has already been brought into account in determining the lessor's rental earnings — a deduction is permitted to that extent
• The rule ensures that termination payments linked to the residual or termination value of the leased asset do not reduce the lessor's taxable profits