Section 70O The lease payments testF1

United Kingdom

(1)

A lease meets the lease payments test if—

(a)

the present value of the minimum lease payments (see section 70YE),

is equal to

(b)

80% or more of the fair value of the leased plant or machinery.

(2)

The present value of the minimum lease payments is to be calculated by using the interest rate implicit in the lease.

(3)

In this section “fair value” means—

(a)

the market value of the leased plant or machinery,

less

(b)

any grants receivable towards the purchase or use of that plant or machinery.

(4)

For the purposes of this section—

(a)

the interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable), but

(F2b)

if a rate cannot be determined in accordance with paragraph (a), the interest rate implicit in the lease is taken to be F3the incremental borrowing rate.

(F45)

For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes.

(6)

The Treasury may by regulations amend this section for the purpose of replacing references to the incremental borrowing rate with references to another rate.

Annotations

Textual amendments

F1: Pt. 2 Ch. 6A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 7
F2: S. 70O(4)(b) substituted (with effect in accordance with Sch. 14 para. 10 of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 9(2)
F3: Words in s. 70O(4)(b) substituted (with effect in accordance with s. 132(4) of the amending Act) by Finance Act 2021 (c. 26), s. 132(1)(a)
F4: S. 70O(5)(6) substituted for s. 70O(5) (with effect in accordance with s. 132(4) of the amending Act) by Finance Act 2021 (c. 26), s. 132(1)(b)

Notes on Part 2

Modifications

C1: Pt. 2 modified (24.2.2003) by Proceeds of Crime Act 2002 (c. 29), s. 458(1), Sch. 10 para. 12 (with Sch. 10 para. 17(1)); S.I. 2003/120, art. 2, Sch. (with arts. 3 4) (as amended (20.2.2003) by S.I. 2003/333, art. 14)
C2: Pt. 2 restricted (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 paras. 10, 22 (with s. 38(2) ); S.I. 2004/2575 , art. 2(1) , Sch. 1
C3: Pt. 2 modified (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 9 paras. 9(2), 21(2) (with s. 38(2)); S.I. 2004/2575, art. 2(1) , Sch. 1
C4: Pt. 2 restricted (5.10.2004) by Energy Act 2004 (c. 20) , s. 198(2) , Sch. 4 para. 4 ; S.I. 2004/2575 , art. 2(1) , Sch. 1
C5: Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 19
C6: Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 35
C7: Pt. 2 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 paras. 36, 37
C8: Pt. 2 modified (21.7.2009) by Finance Act 2009 (c. 10), s. 24
C9: Pt. 2 modified (17.7.2013) by Finance Act 2013 (c. 29), s. 73(7)-(11) (with s. 73(6))
C10: Pt. 2 modified (10.6.2021) by Finance Act 2021 (c. 26), s. 9(1)(a)

Notes on Chapter 6A

Modifications

C1: Pt. 2 Ch. 6A applied (21.7.2008) by Finance Act 2008 (c. 9), Sch. 20 para. 11(12)
C2: Pt. 2 Ch. 6A applied (21.7.2009) by Finance Act 2009 (c. 10), Sch. 33 para. 9(c)
C3: Pt. 2 Ch. 6A applied (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 381(1), 1184(1) (with Sch. 2)
C4: Pt. 2 modified (10.6.2021) by Finance Act 2021 (c. 26), s. 9(1)(a)
C5: Pt. 2 Ch. 6A modified (10.6.2021) by Finance Act 2021 (c. 26), s. 17