Operating leases may contain an option to purchase the leased
asset for the market value of the leased asset at the time the
option is exercised.
Assuming there are no other relevant facts, the existence of
such an option does no more than give the lessee first option to
buy the asset for its market value. As the option is by reference
to the actual market value as established at the time the option is
exercised then the lease rentals will not contain a capital element
and so they cannot trigger CAA01/S67.
You should also accept that the rentals do not contain a
capital element if the option is by reference to the market value
as estimated at the start of the lease. In deciding whether this is
the case you should ensure that the estimated market value is
realistic. If the option is for a price less than the realistic
estimate of the expected market value the rentals will contain a
capital element and so will trigger CAA01/S67.
In both cases it is possible other payments will meet the
condition for the lessee having incurred capital expenditure under
the contract.
Cases of doubt or difficulty should be referred to CT &
VAT (Technical) for advice.
