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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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defining long funding leases: funding leases that are not long funding leases: excluded leases: low percentage value

When the long funding lease rules were being drafted it was recognised that, on occasions–

  • small amounts of plant or machinery would be leased with land that does not include a building. For example, a water pump may be leased with the agricultural land that it services.
  • small amounts of plant or machinery would be leased with land that includes building but which did not meet the definition of background plant or machinery. For example an office block with a substantial amount of background plant or machinery might include a small amount of plant or machinery that is not background plant or machinery.

It was recognised that bringing the derived leases of such plant or machinery within the scope of the long funding lease rules would be both disproportionate in terms of compliance costs and outside the scope of the regime (which is principally aimed at the funding of plant or machinery, not the funding of land).

Therefore CAA01/S70U provides that certain derived leases of plant or machinery are excluded from the scope of the long funding lease rules.

In such a case, the derived lease of the plant and machinery is an excluded lease if the aggregate of the market value of that plant or machinery and the market value of any other plant or machinery leased along with the land that is not background plant or machinery is less than both

  • 10% of the aggregate market value of all the background plant of machinery leased with the land, and
  • 5% of the market value of the land including buildings and fixtures.

Mortgages, leases and other encumbrances are ignored when determining the market value of the land.