Finance Leasing Manual - FLM35.15

Capital allowances: variation of lease terms

You may come across cases where the terms of a Part I lease are varied so as to ensure that the capital sum receivable when the lessor exits from the leasing arrangements does not contain any amount which counts as 'return on investment'. This may be achieved for example by increasing rentals so that rolled up 'interest' or 'negative depreciation' is eliminated before the capital sum falls due. As a result the capital sum will not be a 'major lump sum' and Paragraph 11 Schedule 12 FA 1997 will be of no application. Please report these cases to BTD4 Leasing.