Section 70O | The lease payments test ^F1

(1)A lease meets the lease payments test if—^F1

(a)the present value of the minimum lease payments (see section 70YE),^F1

(b)80% or more of the fair value of the leased plant or machinery.^F1

is equal to

(2)The present value of the minimum lease payments is to be calculated by using the interest rate implicit in the lease.^F1

(3)In this section “fair value” means—^F1

(a)the market value of the leased plant or machinery,^F1

(b)any grants receivable towards the purchase or use of that plant or machinery.^F1

less

(4)For the purposes of this section—^F1

(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^F1

(b)if a rate cannot be determined in accordance with paragraph (a), the interest rate implicit in the lease is taken to be the incremental borrowing rate.^F1F2F3

(5)For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes.^F1F4

(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.^F1F4