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HMRC internal manual

Business Leasing Manual

Defining long funding leases: basic definition: CAA01/S70G

The legislation in CAA01/S70G (1) takes a staged approach to defining a long funding lease.

A long funding lease is

  • a plant or machinery lease (see BLM20120)
  • that is a funding lease (see BLM20205)
  • which is not

    • a short lease (see BLM20510),
    • an excluded lease of background plant or machinery for a building (see BLM21305 onwards),
    • excluded because it is a lease of plant with land and the plant has a low percentage value (see BLM21600).

There are special rules where the lease is of a qualifying ship to a tonnage tax company.

Exclusions from the definition of a funding lease are described at BLM20405. If you are not familiar with these exclusions it may be worth studying these first because, where they apply, there is no need to consider whether the lease is a funding lease.

The definition of a long funding lease applies equally to lessors and lessees. However, a lessor may also elect for leases that would not otherwise be long funding leases to be treated as long funding leases. Guidance on this election is at BLM24000.

In the case of a lessee, a lease that meets the definition of a long funding lease need not be treated as a long funding lease, see BLM20120.

In general, the tests for determining whether a lease is a long funding lease are carried out at inception. However, when the plant or machinery that is leased (whether by lessor or lessee) is not used for the purpose of a qualifying activity (as defined in CAA01/S15, see CA20010) at commencement but is subsequently brought into use for a qualifying activity it will be necessary to determine whether the lease is a long funding lease or not. This may happen, for example, where a lease is entered into by a business whilst outside the UK but which then moves to the UK. Further guidance is at BLM20110.