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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Introduction: Lease taxation: Type of income

A lessor’s income usually arises from the leasing of property (land and buildings) or chattels such plant or machinery. However, intangible assets - such as software - may also be leased.

This manual is mostly concerned with the leasing of chattels such as plant or machinery but the same rules may apply to leases of software. The vast majority of such activity amounts to trading. Rarely, as in the case of special leasing, the leasing of chattels may not amount to a trading activity. See BLM00315 for further guidance.

Most of the guidance on property leasing is contained in the Property Income Manual and the Business Income Manual. However, the leasing of property is specifically considered in this manual in two situations.

  • Finance leasing of property - Part 21 CTA 2010 / Part 11A ITA 2007 (back-loaded leases and avoidance involving ‘income into capital’, BLM70000). Note that Part 21 / Part 11A can also apply to the finance leasing of any other asset.
  • Leasing (finance or operating) of plant or machinery with property in circumstances where the plant or machinery element of the lease is a long funding lease (see BLM20300).

As an example of the second situation, where there is the lease of a factory containing manufacturing plant, the element that relates to the manufacturing plant may be a long funding lease.

Income arising form the leasing of land is taxed as property income, rather than trading income, though the method of computing the profits is the same.