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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: avoidance involving short leases (CAA01/S70I(9))

There is an anti-avoidance rule in CAA01/S70I (9) that applies where

  • there is a lease that would, apart from this anti-avoidance rule, otherwise be a short lease,
  • the inception (see CAA01/S70YI, BLM25005) of the lease is on or after 7 April 2006,
  • at the time that lease is entered into arrangements are entered into for the asset to be leased to others, including persons connected with the first lessee, and
  • the total of the lease terms to the first lessee and any person connected to him exceeds 5 years.

Where the rule applies, the lease is not a short lease.

Note that the inception must be after 7 April 2006 (not 1 April, as might be expected) because this rule was introduced when the Finance Bill was published (on 7 April 2006), not on Budget day.

This rule prevents lessors and lessee groups splitting long leases into shorter leases, thus avoiding the effects of the long funding lease rules.


The Alphabet Shipping Group wishes to lease a ship for ten years and arranges for a ship to be leased by Lessor Plc to group company A Ltd for years 1 to 5 and to fellow group member B Ltd for years 6 to 10. The lease from Lessor Plc to A Ltd is not a short lease.

If B Ltd had not been connected to A Ltd the lease would have remained a short lease.