Introduction Overview Overview Section 362: Lessor under long funding finance lease making termination payment
1124.This section prohibits a deduction by a lessor for a payment made in respect of the termination of a long funding finance lease if the amount of the payment is calculated by reference to “termination value”. It is based on section 502D of ICTA.
1125.On termination of a finance lease of an asset, the lessor often makes a payment to the lessee, commonly referred to as a rebate of rentals. This payment principally represents partial reimbursement of payments made by the lessee in respect of the capital value of the asset, unencumbered possession of which has reverted to the lessor as a result of the termination. This section prevents such a payment from being deducted by the lessor for corporation tax purposes. But the section does not prevent the deduction of a payment to the extent it is in respect of a sum included in computing rental earnings (see subsection (3)).
1126.Subsection (4) is new and provides a signpost to the definition of “termination value”.