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HMRC internal manual

Business Leasing Manual

Introduction: Leasing: Capital allowances

Generally speaking, capital allowances are given to the legal owner of the asset. This is so whether the lease is a finance lease or an operating lease. But this is a complex subject. For example

  • in the case of industrial buildings, the allowances broadly go to the holder of the ‘relevant interest’ (CA 30300 ; broadly the freehold or leasehold interest held by the person who originally incurred the expenditure on the asset or their successor
  • in the case of plant or machinery the allowances go to the legal owner of the asset; but there are also special rules for hire purchase cases and for fixtures (CA23300 and CA26000 respectively).

FA 2006 introduced a new regime for taxing ‘long funding’ leases of plant or machinery - see BLM20000 onwards for details. If a lease is a long funding lease, the lessor loses the right to claim capital allowances and the lessee generally gains it.