Finance Leasing Manual - FLM27.01

Schedule 12 FA 1997: overview

Schedule 12 FA 1997 contains rules for determining the tax treatment of 'income-into-capital' schemes and deferral leases.

• Part I of Schedule 12 counters 'income-into-capital' leasing schemes whereby finance lessors try to turn some of their lease rental income into capital receipts. It applies to leases in existence on 26 November 1996 as well as new leases. See FLM27.05 onwards.

• Part II of Schedule 12 deals with a possible deferral of tax liability by means of leases under which rentals are concentrated towards the end of the lease term. It applies only to new leases after 26 November 1996. See FLM27.13 onwards.

In both cases, from 26 November 1996 the minimum rental income for tax purposes should be the income recognised in lessors' commercial accounts (the `accountancy rental earnings`). But there are also provisions intended to ensure that there is no double taxation of the lessor's total return from the lease (see FLM33.01 onwards).