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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Defining long funding leases: amendments, transfers and assignments: transfers by lessors (CAA01/S70W)

A lessor of plant or machinery may sell or otherwise transfer the leased plant or machinery to another person and at the same time the lease may be novated to the new lessor.

When this happens the old lessor is treated as if the lease terminated immediately before the transfer, even where this is not actually the case. (It is thought that, in practice, there must be a novation and so a new lease will always be created under general law. But the legislation is drafted to catch transfers that do not create a new lease in general law.)

The new lessor is treated as if

  • a new lease had been entered into immediately after the transfer
  • the new lease started on the transfer date, and
  • the term of the new lease started on the transfer date.

Without these rules, the rules taxing long funding operating leases might not work as intended. With them, the old and new lessors are each taxed on an appropriate measure of profit based on the value of the asset at the date of the transfer.

In addition, where

  • the term of the new lease is the unexpired portion of the term of the old lease, and
  • the rents receivable under the new lease are the same as the rents that would have been receivable under the old lease, see BLM22045.

the new lease is treated as a lease of the same type as the old lease. That is, where the old lease is not a long funding lease for the old lessor, then the new lease is not a long funding lease for the new lessor. And if the old lease is a long funding lease for the old lessor the new lease is a long funding lease for the new lessor. See example at BLM22050.

CAA01/S70W only applies where the lessee remains the same. It does not apply where the lessor sells the asset to another person, and leases it back, thus allowing the original lease to remain in place. In these circumstances CAA01/S70Y applies, see BLM22065.