Rent paid under an arrangement whereby assets are leased by an
employer for use by employees or directors, (see SE01480), will
normally be allowable as a deduction in computing profits under
Case I or II of Schedule D.
Where, however, the employer is a family-controlled company (see, for example, Samuel Dracup & Sons Ltd v Dakin  37TC377) the expense incurred by the company in leasing an asset for the use of a director or an employee who is a member of the family or household of a director may exceptionally be inadmissible. This is on the grounds that it is not an expense wholly and exclusively laid out for the purpose of rewarding the service provided by the director or employee concerned. The approach set out in BIM47105 should be followed in deciding whether to challenge a leasing arrangement of this kind.
A deduction would similarly be precluded in respect of expenditure incurred by a sole trader or partnership for the personal advantage of an employee who is a member of the family or household of the sole trader or, in the case of a partnership, of one of the partners.
As regards the restriction of a deduction in respect of rental charges paid for the hire of certain expensive motor cars, see BIM47715.
For cross-references to the guidance on leasing see BIM46805.