Finance Act 1997

Reduction of taxable rent by certain excesses

6 (1) Subject to sub-paragraph (6)(b) below, if in the case of the lease—

(a) the normal rent for a period of account of the current lessor throughout which the leasing arrangements are such as fall for accounting purposes to be treated in accordance with normal accountancy practice as a finance lease or loan, exceeds

(b) the accountancy rental earnings for the period,

there is for the purposes of this paragraph a “normal rental excess” for that period of an amount equal to the excess.

(2) In this paragraph the “cumulative normal rental excess” in the case of the lease and a period of account of the current lessor means so much of the aggregate of the normal rental excesses for previous periods of account of his as (after taking account of any increases under paragraph 10 below) has not been—

(a) set off under this paragraph against the taxable rent for any such previous period; or

(b) reduced under paragraph 10 below.

(3) Subject to sub-paragraph (8)(b) below, if the taxable rent in the case of the lease for a period of account of the current lessor is, by virtue of paragraph 5 above, an amount equal to the accountancy rental earnings, there is for the purposes of this paragraph an “accountancy rental excess” for that period of an amount equal to the difference between—

(a) the accountancy rental earnings for the period of account; and

(b) the normal rent for the period.

(4) In this paragraph the “cumulative accountancy rental excess”, in the case of the lease and a period of account of the current lessor, means so much of the aggregate of the accountancy rental excesses for previous periods of account of his as (after taking account of any increases under paragraph 9 below) has not been—

(a) set off under this paragraph against the taxable rent for any such previous period;

(b) reduced under paragraph 9 below; or

(c) set off under paragraph 12 below against the consideration for a disposal.

(5) If a period of account of the current lessor is one—

(a) for which the normal rent exceeds the accountancy rental earnings, and

(b) for which there is any cumulative accountancy rental excess,

sub-paragraph (6) below shall apply.

(6) Where this sub-paragraph applies—

(a) the taxable rent for the period of account shall be reduced (but not below the accountancy rental earnings) by setting against it the cumulative accountancy rental excess; and

(b) the normal rental excess for the period shall be the amount (if any) by which—

(i) the normal rent, reduced by an amount equal to the reduction under paragraph (a) above, exceeds

(ii) the accountancy rental earnings,

and if there is no such excess, there is no normal rental excess for the period.

(7) If a period of account of the current lessor is one—

(a) for which the taxable rent in the case of the lease is, by virtue of paragraph 5 above, an amount equal to the accountancy rental earnings, and

(b) there is any cumulative normal rental excess,

sub-paragraph (8) below shall apply.

(8) Where this sub-paragraph applies—

(a) the taxable rent for the period of account shall be reduced (but not below the normal rent) by setting against it the cumulative normal rental excess, and

(b) the accountancy rental excess for the period shall be the amount (if any) by which—

(i) the accountancy rental earnings, reduced by an amount equal to the reduction under paragraph (a) above, exceeds

(ii) the normal rent,

and if there is no such excess, there is no accountancy rental excess for the period.

(9) In this paragraph “the taxable rent”, in the case of a period of account of the current lessor, means the amount which would, apart from this paragraph and paragraph 8(6) below, be treated for tax purposes as rent from the lease—

(a) which arises to him, and

(b) if rent arising to him from the lease is chargeable to corporation tax under Schedule A, to which he is entitled,

in that period of account for the purpose of determining his liability to tax for the related chargeable period or periods.