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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
, see all updates

Defining long funding leases: amendments, transfers and assignments: amendments to a lease other than change of lessor or lessee - terms not extended

An amendment to a lease may, as a matter of law, create a new lease.

Therefore you should review amendments to a lease to see if it has created a new lease, whether or not the documentation purports to show otherwise. The mere fact that the documents state a new lease has not been created is not proof that a new lease has not been created.

It is not entirely clear, in law, at what point changes to a lease create a new contract (and so a new lease) rather than amending an existing lease. You should accept that minor amendments, such as making small changes to the lease rentals as a result of incurring additional expenditure on the asset, will not create a new lease, see example below.

Where there are more substantial changes you will need to look at the facts before deciding whether the existing lease continues or whether a new lease has been created. You should, of course, also consider the consequences of the existence of a new lease. The most obvious are that

  • a lease that was not a long funding lease turns into a long funding lease (though this is most likely to happen where the lease term is extended)
  • a derived lease is created.

If the amendment creates a new lease as a matter of general law then you should consider whether the new lease is a long funding lease in the normal way. The normal commencement and transitional rules will apply to the new lease, see BLM23000 onwards. If you think that a new lease has been created as a result of modifications to an existing lease you should seek advice from CTISA (CT&BIT) before entering into a dispute with the taxpayer.

The fact that a new lease has not been created (as a matter of general law) does not preclude the creation of a new derived lease, see BLM20300. Where a lessor incurs additional capital expenditure on the leased asset the provisions of CAA01/S70L will create a derived lease if the additional expenditure is on an asset of a different kind. No derived lease will be created where the expenditure does no more than enhance the existing asset.

The same principles apply, whether or not the existing lease is a long funding lease.


A lessor leases a locomotive to a rail franchisee in 2001. In 2007, the lessor incurs additional capital expenditure upgrading the safety systems which are expected to last for the remaining useful economic life of the locomotive. The lease rentals are increased by about 10% to reflect that expenditure, but no other changes are made.

The leased asset is the locomotive and the additions are not sufficiently material to create a new lease of that asset.