What does section 148EA of ITTOIA 2005 determine?

Section 148EA determines the remaining residual value (RRV) of plant or machinery when a lessor incurs additional expenditure for the first time under a long funding operating lease. It compares the expected residual value at the time of expenditure (ARV) with the value estimated at lease commencement (CRV) and attributes any excess to the additional spending.

How are ARV and CRV used to calculate remaining residual value under section 148EA?

ARV is the expected residual value when additional expenditure is incurred, and CRV is the residual value estimated at lease commencement. If ARV exceeds CRV, the remaining residual value is the portion of the difference attributable to the additional expenditure. If ARV does not exceed CRV, the remaining residual value is nil.

When does section 148EA apply rather than other residual value provisions?

Section 148EA applies only where the lessor has not previously incurred additional expenditure on the leased asset to which section 148E has applied. It covers the first occasion of additional expenditure on plant or machinery under a long funding operating lease, including cases involving originally non-qualifying assets under section 148DB.

What happens if the increase in residual value is not entirely due to additional expenditure?

If ARV exceeds CRV, not all of the increase may be attributed to the additional expenditure. Only the portion of the difference reasonably attributable to the lessor's additional spending counts as the remaining residual value. Increases caused by other factors such as favourable market conditions are excluded from the RRV calculation.

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

Determination of remaining residual value resulting from lessor's first additional expenditure

Section 148EA sets out how to calculate the remaining residual value of plant or machinery when a lessor incurs additional expenditure for the first time under a long funding operating lease.

This section applies only where the lessor has not previously incurred additional expenditure on the leased asset to which section 148E has applied
The calculation compares the expected residual value at the time the additional expenditure is incurred (ARV) with the expected residual value estimated at the start of the lease (CRV)
If ARV exceeds CRV, the remaining residual value (RRV) is the portion of that excess attributable to the additional expenditure
If ARV does not exceed CRV, the remaining residual value is nil

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