Finance Act, 1990

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Finance leases.

33.—(1) A finance lease, that is to say—

(a) a lease in respect of a qualifying premises where at the inception of the lease the aggregate of the current value of the minimum lease payments, including any initial payment but excluding any payment or part thereof for which the lessor will be accountable to the lessee, payable by the lessee in relation to the lease amounts to an amount equal to 90 per cent. or more of the fair value of the qualifying premises, or

(b) a lease which, in all the circumstances, is considered to provide in substance for the lessee the risks and benefits associated with ownership of the qualifying premises other than legal title to that premises,

shall not be a qualifying lease for the purposes of section 45 of the Finance Act, 1986 .

(2) (a) In this section—

“current value”, in relation to minimum lease payments, means the value of those payments discounted to their present value at a rate which, when applied at the inception of the lease to—

(i) those payments, including any initial payment but excluding any payment or part thereof for which the lessor will be accountable to the lessee, and

(ii) any unguaranteed residual value of the qualifying premises, excluding any part of such value for which the lessor will be accountable to the lessee,

produces discounted present values the aggregate amount of which equals the amount of the fair value of the qualifying premises;

“fair value”, in relation to a qualifying premises, means an amount equal to such consideration as might be expected to be paid for the premises on a sale negotiated on an arm's length basis less any grants receivable towards the purchase of the qualifying premises;

“inception of the lease” means the earlier of the time the qualifying premises is brought into use or the date from which rentals under the lease first accrue;

“minimum lease payments” means the minimum payments over the remaining part of the term of the lease to be paid to the lessor and includes any residual amount which is to be paid to the lessor at the end of the term of the lease and which is guaranteed by the lessee or by a person who is connected with the lessee;

“qualifying premises” has the meaning assigned to it by section 45 of the Finance Act, 1986 ;

“unguaranteed residual value”, in relation to a qualifying premises, means that part of the residual value of that premises at the end of a term of a lease, as estimated at the inception of the lease, the realisation of which by the lessor is not assured or is guaranteed solely by a person who is connected with the lessor.

(b) For the purposes of this section a person shall be regarded as connected with another person if he would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .