Finance Leasing Manual - FLM31.85

Fifth condition: 'arrangements' or 'circumstances'

The condition in Paragraph 3(5) is satisfied if either:

• 'arrangements' exist whereby the future event (described above) may occur; or

• 'circumstances' exist which make it more likely that the future event (described above) will occur than that beforehand the leased asset (or the asset representing the leased asset) should be sold in the open market to a third party who is not connected either with the lessor or the lessee (Paragraph 4(2)-(4) Schedule 12 FA 1997).

'Arrangements' are not defined in the legislation and take their natural meaning. In recognition of the evidential and other problems which can occur in practice in showing that 'arrangements' exist the provisions include a further test based on 'circumstances'.

In applying the 'circumstances' test you should bear in mind what types of transaction Part I of Schedule 12 is intended to catch, namely leases providing a clear opportunity for income to be turned into capital.