Corporation Tax Act 2010 section 865

Tax deduction not to exceed commercial rent

Section 865 restricts the corporation tax deduction a company can claim for lease payments on trading assets acquired through a sale and leaseback arrangement, ensuring the deduction does not exceed the commercial rent, and provides a mechanism for carrying forward any denied relief.

• The tax deduction for lease payments is limited to the lower of the cumulative unrelieved expenses and the commercial rent for the period.
• Cumulative unrelieved expenses are calculated by comparing the total accounting expense recognised since the lease began with the total deductions already claimed in earlier periods.
• Once no further qualifying lease payments arise in the current or any future period (a "post-spread period"), no further deduction is allowed.
• Only the non-excluded element of each payment is considered — that is, the portion not already excluded under the rules for long funding finance leases.