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

Lessor under long funding operating lease: termination of lease

Section 148F deals with how a lessor's trading profits are adjusted for income tax purposes when a long funding operating lease comes to an end, determining whether a taxable gain or deductible expense arises on termination.

• If the termination amount exceeds certain allowable costs, the excess is treated as taxable income in the period the lease ends
• If the allowable costs exceed the termination amount, the excess is treated as a deductible revenue expense in the period the lease ends
• Allowable costs comprise payments made to the lessee based on termination value, any unrelieved starting value of the asset, and any unrelieved additional capital expenditure
• No separate tax deduction is permitted for amounts paid to the lessee that are calculated by reference to the termination value