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HMRC internal manual

Business Leasing Manual

Defining long funding leases: funding leases that are not long funding leases: short leases: excluded leases: residential property

Lessors of residential property are not generally entitled to claim capital allowances on any plant or machinery it may contain because CAA01/S35 denies capital allowances for expenditure ‘incurred in providing plant or machinery for use in a dwelling-house’.

Some leases of residential property such as blocks of flats may include expenditure on lifts and air-conditioning etc in the common parts. These qualify for capital allowances and you should accept that they are wholly incidental to the lease of the property itself, and so qualify as background plant or machinery.

As a consequence, leases of residential property will not include long funding leases unless the lease includes plant or machinery that does not fall within the definition of background plant or machinery. (For this to be the case, the lease would have to include plant or machinery that is not normally found in residential property and which is not there to contribute to the functionality of the building as residential property.)