Example
The crucial benefit underpinning an income-into-capital
scheme is that although the option excess is recognised as income
it is not taxed as such. The tax computation omits the £30m of
'interest' in the £100m option price.
In tax terms Bank (the lessor) does not make a profit in any
year. As can be seen from the tax computation below the tax losses
amount to £23m which, at 33%, means that Bank can shelter
£7.6m of their other profits from the Exchequer. The tax
computation looks like this:
In £millions
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Total |
| Rent income | 0 | 3 | 4 | 5 | 6 | 7 | 7 | 8 | 40 |
| Expense | 0 | -9 | -9 | -9 | -9 | -9 | -9 | -9 | -63 |
| Profit/(Loss) | 0 | -6 | -5 | -4 | -3 | -2 | -2 | -1 | -23 |
