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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Defining long funding leases: plant or machinery leased with other assets: derived lease rentals

A just and reasonable apportionment is required to decide what part of the rentals payable under the mixed lease should be treated as payable under each derived lease (the deemed rentals).

The rentals under the derived lease are treated as payable in equal instalments unless it would be reasonable to use a different treatment having regard to all the circumstances of the case. The circumstances to take into account include

  • the provisions of the mixed lease
  • the nature of the relevant plant or machinery, the value of the relevant plant or machinery at the beginning of the term of the derived lease
  • the expected market value of the relevant plant or machinery at the end of the term of the derived lease
  • the remaining useful economic life of the plant or machinery when the term of the derived lease begins
  • the term of the derived lease.

The deemed rentals payable under any derived lease for any period must not exceed the rentals actually payable under the eligible mixed lease.

See examples 1 and 2 at BLM20330