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HMRC internal manual

Business Leasing Manual

Defining long funding leases: election: plant or machinery lessor, SI2007/304 regulations 2

The rules for taxing long funding leases apply only to leases of plant or machinery, as does the election.

You should follow the guidance at CA21010 onwards to determine whether a particular asset is plant or machinery.

An asset that is not the subject of a long funding lease may not qualify for capital allowances but this does not mean the asset is not plant or machinery. In other words, the lease of an asset that does not qualify for capital allowances falls within the scope of an election if the leased asset is plant or machinery.


An equipment lessor intends to lease central heating and micro-generation systems. These systems are likely to be fixtures and so fall within the scope of Chapter 14 of Part 2 CAA2001.

It is unlikely that the lessor will be able to claim capital allowances for one or more reasons, including the possibilities that

  • the lessee does not have a qualifying activity (CAA01/S177 (1)(a)), or
  • the equipment is to be used in a dwelling house (CAA01/S178 (c)).

Further guidance on equipment lessors is given at CA26200.

Although capital allowances would not be available if the lease was not a long funding lease, the asset is still plant or machinery.

It follows that

  • the lease of a central heating system or micro-generation equipment is a lease of plant or machinery, and
  • where a lessor of such assets elects for leases to be taxed as long funding leases all eligible leases (and qualifying incidental leases) of those assets will be treated as long funding leases.