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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Defining long funding leases: amendments, transfers and assignments: transfers by lessees (CAA01/S70X)

Similar rules apply to transfers by lessees as apply to transfers by lessors as explained in BLM22045.

Where a lessee of an asset (the old lessee) transfers that asset to another person who becomes the lessee of the asset (the new lessee) the old lease is treated as terminating immediately before the transfer. If the lease has been treated as a long funding operating lease by the old lessee there will be a disposal event and the new lessee will be treated as incurring qualifying expenditure.

The new lessee is treated as if

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

In addition, where

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

the new lease is treated as a lease of the same type (long funding lease or not) as the old lease.

The meaning of the transfer of plant or machinery is the same as in the case of a transfer between lessors, see BLM22060.

The interaction between FA06/SCH8/PARA15 and CAA01/S70X means that

  • where a lessor had entered into a lease before the long funding lease provisions came into effect, and
  • the lease is novated from the existing lessee to a new lessee such that CAA01/S70X preserves the lessee’s treatment of the lease as a lease which is not a long funding lease,

the lease remains a lease that is not a long funding lease in the lessor’s hands.