Finance Leasing Manual - FLM32.27

Comparing accountancy rental earnings and normal rent

The effect of recognising for any period of account the higher of the accountancy rental earnings or the normal rent is that, without specific provision, more rental income may ultimately be recognised over the period of the lease than is actually received. In the case of a lease within Part I Schedule 12 some of that excess will represent income which but for Schedule 12 would have been turned into capital. But the balance has to be excluded from double taxation. This is achieved by the rules in Paragraph 6 Schedule 12 FA 1997. See FLM33.01 onwards for a detailed account of those rules.