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

Lessee under long funding operating lease

Section 148I reduces the allowable deductions for a lessee of plant or machinery under a long funding operating lease when calculating trading profits for income tax purposes, based on the expected decline in value of the leased asset over the lease term.

• The "relevant value" of the leased plant or machinery must first be established — normally the market value at the start of the lease, but a special rule applies where the asset was originally acquired for non-qualifying purposes and brought into qualifying use on or after 1 April 2006
• The expected gross reduction over the lease term is calculated by subtracting the expected market value at the end of the lease from the relevant value
• This expected gross reduction is then apportioned on a time basis across each period of account in which any part of the lease term falls
• The amount apportioned to each period of account is the amount by which the allowable deductions for that period must be reduced

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