Finance Leasing Manual - FLM43.20
Debts become bad after first year: 'loan' treated as repaid when asset sold
In the example at FLM43.18 there is a third, perhaps more
likely, accounting possibility - that is that the loan will be
treated as 'repaid' on the date that the asset was sold. The result
would be that a finance charge would be included in year 2 albeit
smaller than £3,381. The bad debt deduction would be
correspondingly smaller. The position for tax purposes is as in the
preceding paragraphs.
Whatever the presentation the end result should be the
same:
- the commercial loss is £10,000 (£50,000 less rent £20,000 less recovery £20,000)
- the tax result is that the lessor is taxed on £20,000 rent in year one, and obtains Capital Allowances on £30,000 (£50,000 less £20,000 recovery);
- overall the Schedule D Case I loss after Capital Allowances is £10,000.
