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HMRC internal manual

Business Leasing Manual

Introduction: Lease taxation: Introduction to leases with options

A lease may contain an option for the lessee to acquire the asset at some point. Typically this is once the lessor has received sufficient rentals to recover the capital cost of the asset plus ‘interest’.

The most common form of this type of contract is a hire purchase contract. However, not all leases that include an option for the lessee to acquire the plant or machinery are hire purchase contracts.

Guidance on whether or not a lease with an option is a hire purchase contract is at BLM00330 onwards.

Guidance on the tax treatment of hire purchase transactions is at BIM40550 onwards (lessor’s receipts) and BIM45350 onwards (lessee’s expenditure).