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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
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LFLs: commencement and transition: coming within the charge to tax on or after 1 April 2006

When a person (lessor or lessee, as appropriate) comes within the charge to UK tax, perhaps by becoming resident in the UK, the general rule is that the tests in CAA01/S70G for determining whether a lease is a long funding lease are applied as at inception, see BLM20110.

FA06/SCH8/PARA15 contains a rule which creates a transitional exception to this general rule.

The transitional rule is that if the lease was finalised before 21 July 2005 and the person concerned (lessor or lessee) came within the charge to UK tax before 18 May 2006 the lease will not be a long funding lease.

It follows that where a lease was finalised before 21 July 2005 at a time when the lessor was outside the charge to tax, the long funding lease legislation may apply if the lessor comes within the charge to tax after 17 May 2006. The charge to tax means the charge to UK tax, whether income tax or corporation tax.

Whether or not the long funding lease legislation does apply will depend on whether or not the lease would have been treated as a long funding lease had the tests in CAA01/S70G been applied at inception, in accordance with the general rule, and even though the lease was finalised before 21 July 2005.