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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Defining long funding leases: funding leases that are not long funding leases: short leases: CAA01/S70I

A short lease is a lease whose term is

  • not more than 5 years, or
  • more than 5 and not more than 7 years, provided that the following conditions are met
  1. the lease is treated as a finance lease under GAAP or would be if GAAP were followed,
  2. the residual value of the asset implied in the lease is not more than five per cent of the fair value of the asset at commencement, as estimated at inception, and
  3. the rentals falling due in any year do not vary by more than the amounts specified in BLM20515.

The requirement for a lease with a term of more than 5 years to be treated as a finance lease means that an operating lease with a term of more than 5 years cannot be a short lease.