BLM15070 | Lease accounting: finance lease accounting: finance lessees: lessee accounting with loaded rental structures

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

Example 1, which follows at BLM15500 onwards, illustrates cases where the rental payments in the primary lease period are constant throughout.

In some instances, however, payments may be loaded towards the 'front-end' of the lease (as was the case in Threlfall v Jones, 66TC77). In others the payments may be loaded towards the ‘back-end’ (sometimes called balloon leases).

The issue of Statement of Practice 3/91 was prompted by the existence of structures involving 'front-loaded' leases which sought to maximise the tax benefits inherent in finance leasing. It is also undoubtedly the case that some leases where payments are loaded towards the back-end are very tax efficient. But leases with skewed rental profiles are not necessarily all about avoiding tax. Different rental structures may be arranged for several reasons. For example, if rentals are to be funded from the income produced by the leased asset and the asset is not fully income producing from the outset, a rental structure which recognises this may be implemented.

Example 2, following at BLM15600 onwards, illustrates the consequences of heavily back-loaded rentals.