Finance Leasing Manual - FLM29.06

Income-into-capital schemes; lessor's tax treatment

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 30 million of 'interest' in the 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 shield £7.6m of its other profits from the Exchequer.

The tax computation