Section 437C — Corporation Tax Act 2010: Present value of a lease

Present value of a lease 437C 1 For the purposes of section 437A, the present value of a lease is the present value of the amounts mentioned in subsection (2).

2 The amounts are—

a the amounts payable under the lease after the relevant time, and b any residual amount.

3 Subsection (2)(a) does not apply to amounts payable by the lessor or to amounts that represent—

a charges for services, or b qualifying UK or foreign tax to be paid by the lessor.

4 Present value is to be calculated by using the interest rate implicit in the lease.

5 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).

6 But if a rate cannot be determined in accordance with subsection (5), the interest rate implicit in the lease is taken to be the incremental borrowing rate .

7 For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes. 7A The Treasury may by regulations amend this section for the purpose of replacing references to the incremental borrowing rate with references to another rate.

8 If—

a the lessee has an option to continue the lease for a period after expiry of its initial term, and b it is reasonably certain at the relevant time that the lessee will exercise that option, references in this section to amounts payable under the lease include amounts payable under the lease as continued for any such period.

9 If the lease also relates to land or assets that are not plant or machinery, the present value of the lease is so much of the present value of the amounts mentioned in subsection (2) as is attributable to the plant or machinery on a just and reasonable apportionment.

10 In this section, “qualifying UK or foreign tax” and “residual amount” have the meaning given in section 70YE of CAA 2001.