Finance Leasing Manual - FLM31.78

Fifth condition: likelihood of disposal of asset

The fifth condition in Paragraph 3 Schedule 12 FA 1997 concerns the likelihood of disposal of the asset to the lessee or connected person for price which includes investment return. The condition in Paragraph 3(5) restricts the circumstances in which a lessor's potential to exit from leasing arrangements for a capital sum reflecting rolled up 'interest' causes a lease to come within Part I of Schedule 12. Paragraph 3(5) requires there to be some real prospect that the capital sum will be received in connection with the acquisition, directly or indirectly, of the leased asset by the lessee himself or an associate of the lessee.

The possibility of the receipt of such a capital sum only from a genuinely independent party acting at arm's length is insufficient to bring a lease within Part I. This condition is intended to focus Part I more sharply on the transactions where the Exchequer is in practice at most risk.