Finance Leasing Manual - FLM31.53

Third condition: investment return not taxable as normal rent

The condition Paragraph 3(3) Schedule 12 FA 1997 is intended to exclude cases where the whole of what represents return on investment in a major lump sum is taxable as rental income. In such a case there is no prospect that the 'interest' on the lessor's outlay on the leased asset (in substance a loan) will be received in capital form.

The following detailed points should be noted:

• the condition is failed (so that the lease is excluded from Schedule 12) only if it is the lessor who is taxable in this way - a connected person will not do;

• all the return in the major lump sum must be taxable in the form of 'normal rent' - this is explained in FLM31.66;

• it must all be taxable for accounting periods ending with the one in which the period of account, in which the major lump sum may be paid, falls (or by the latest year of assessment for which that period of account is the basis period in an income tax case) - Paragraph 3(8) Schedule 12 FA 1997.