502GLessor under long funding operating lease: termination of leaseU.K.
(1)This section applies for determining the liability to corporation tax of a company which is the lessor immediately before the termination of a long funding operating lease.
(2)Step 1 is to find—
(a)the termination amount (TA);
(b)the total of any sums paid to the lessee that are calculated by reference to the termination value (LP).
(3)Step 2 is to find—
(a)the relevant value for the purposes of section 502E(6)(a) (RV);
(b)the total of the deductions allowable under section 502E for periods of account for the whole or part of which the company was the lessor before the termination of the lease (TD1);
(c)the amount, if any, (ERV) by which RV exceeds TD1.
(4)Step 3 is to find—
(a)the total of any amounts of capital expenditure incurred by the company which constitute additional expenditure for the purposes of section 502F in the case of the lease (TAE);
(b)the total of any deductions allowable under section 502F for periods of account for the whole or part of which the company was the lessor before the termination of the lease (TD2);
(c)the amount, if any, (EAE) by which TAE exceeds TD2.
(5)Step 4 is to find the total of ERV and EAE (T).
(6)If (TA – LP) exceeds T, treat a profit of an amount equal to the excess as arising to the company in the period of account in which the lease terminates.
(7)If T exceeds (TA – LP), treat a loss of an amount equal to the excess as arising to the company in that period of account.
(8)A profit or loss treated as arising to the company under subsection (6) or (7) above is to be treated—
(a)in the case of a profit, as income of the company attributable to the lease,
(b)in the case of a loss, as a revenue expense incurred by the company in connection with the lease.
(9)In computing the profits of the company, no deduction is allowed in respect of any sums paid to the lessee that are calculated by reference to the termination value.