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HMRC internal manual

Business Leasing Manual

Defining long funding leases: amendments, transfers and assignments: transfers, assignments - general

It is not uncommon for one lessor to be replaced with another lessor, or one lessee to be replaced with another lessee.

Commonly, such a transfer will be made via a sale and novation, which creates a new lease contract. Without special rules, it would be necessary to consider whether the new lease was a long funding lease or not. However if the terms of the lease remain substantially unchanged - or more correctly, the terms of the new lease are substantially similar to the unexpired part of the original lease - there are rules to ensure that the lease remains classified in the same way before and after the transfer. (See BLM22060 for the meaning of ‘transfer’.)

CAA01/S70W and CAA01/S70X deal with the transfer of leased plant or machinery from one lessor to another and one lessee to another, respectively. The transfer of a leased asset (together with the lease) usually involves the novation of the lease contract and so the creation of a new lease from the new lessor to the existing lessee or from the existing lessor to the new lessee.

In broad terms, the effect of these sections is to allow the taxation of the old and new lessors (and lessees) to proceed independently whilst preserving the classification of the original lease as a long funding lease or otherwise, but only if the arrangements remain essentially the same apart from the change in lessor or lessee.

Further guidance is at

  • BLM22040 onwards - transfers by lessors
  • BLM22055 onwards - transfers by lessees.