Asset and vehicle examples for lease payments

Asset leased

Whole value claimed by leasing payments, asset disposed of

	£
Cost of asset	6,000
Lease payments claimed (capital element)	(6,000)
Residual value	0
Disposal proceeds (or withdrawal at MV)	(2,500)
'Refund of lease payments' to bring in	(2,500)
Note: i) If disposal value is greater than the cost, restrict to cost (ii) With a finance lease, when the lessee sells the asset, he is doing so on behalf of the lessor. (iii) The refund is brought into the computation in the year of the disposal.

Asset leased but whole of rentals due not yet paid

Example (a)	£
Cost of asset	10,000
Lease rentals to date	(4,000)
Residual value	6,000
Disposal	(7,000)
Refund of lease payments to assess	(1,000)
In this scenario £6,000 will have to be paid to the lessor as this is the outstanding capital owned on the asset. The 'profit' of £1000 is treated as refunded lease payments and assessed in the year of the disposal.

Example (b)	£
Cost of asset	10,000
Lease rentals to date	(4,000)
Residual value	6,000
Disposal	(3,500)
Additional lease rentals allowed	2,500
The taxpayer is required to pay £6,000 to the lessor. He receives only £3,500 from the disposal and therefore can claim additional lease rentals of £2,500 in the year of the disposal. Proof: cost to taxpayer £10,000 - £3,500 = £6,500 Rentals paid to date £4,000 + additional rentals on disposal £2,500 = £6,500

Leased motor vehicle taken in part exchange for replacement leased vehicle

		£
Old vehicle	Cost	10,000
	Lease rentals to date	(4,000)
	Residual value	6,000
	Part exchange value	(7,000)
	'Refunded' rentals to assess	(1,000)
New Vehicle	Cost	12,000
	Part exchange ('deposit')	(7,000)
	Rentals in first year	(500)
	Residual value	4,500
Net Result: Allow Lease rentals in year of part exchange of £6,500 (£7,500 - £1,000). Had the whole of the rentals on the old vehicle been paid at the date of the part exchange, the whole of the part exchange value would have been assessed and this would counteract the higher rentals claimed in the first year on the new vehicle.

Note: Historically, many agents will not include the part exchange value on disposal of the old vehicle and merely claim the reduced lease rentals on the new vehicle. This is an acceptable practice. The eventual 'profit' (refund of rentals) will crystallise when the final vehicle is disposed of (and will be by reference to the cost of that final vehicle).

Expensive motor vehicles

Ongoing position
Vehicle cost £40,000	Notional cost £22,000

		£
Lease rentals	Capital	8,000
	Interest	500
	Total	8,500
	Allow 22,000/40,000 x £8,500 = £4,675
On disposal	Cost	40,000
	Lease rentals paid	(30,000)	(but restricted to £16,500)
	Residual value	10,000
	Disposal	(17,000)
	Refund of lease rentals	7,000	(but restricted to 22/40 x £7,000 = £3,850)
Proof: Lease rentals on notional cost	Notional cost	22,000
	Restricted rentals	16,500
	Residual value	5,500
	Notional disposal	(9,350)	22/40 x 17,000
	Refund of rentals	(3,850)