The tax treatment of an operating lessor’s rentals
follows GAAP unless the lease is a long funding lease of plant or
machinery (outline at
BLM00550 and detail at
BLM20000), in which case the tax
treatment is very different (
BLM40000 onwards).
Generally accepted accounting practice recognises (gross)
rentals, typically on a straight-line basis over the period of the
lease, and so this is the approach taken for tax.
The accounts show depreciation of the asset as an expense in
the profit and loss account. Depreciation of a capital asset is, of
course, not an allowable deduction for the purpose of computing
profits or losses. This follows from the basic principle that
income tax excludes capital items.
Although depreciation is not an allowable deduction, capital
allowances may be available to the owner of assets leased out under
operating leases.
