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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: election: eligible leases: plant or machinery must be new, etc (SI2007/304 regulation 3 condition E)

Subject to meeting the other conditions in regulation 3, an election applies to plant or machinery that is new (unused and not second-hand) at the commencement of the term of the lease.

The ‘commencement’ of the term of a lease is the date on and after which the lessee is entitled to use the complete leased asset under the lease and for this purpose an asset is to be regarded as complete if its construction is substantially complete (CAA01/S70YI).

The use of the term ‘substantially complete’ means that relatively minor works that may be needed following the date when the lessee is entitled to use the asset do not delay the date of commencement of the lease term.

However, in many cases, limiting the election to new plant or machinery would be too restrictive to make the election of practical use. Therefore a lease may also be an eligible lease in three other circumstances

  • the lease may be an eligible lease if the plant or machinery was last used for leasing under a long funding lease before the commencement of the term of the lease. Therefore plant or machinery that is leased out under a series of long funding leases will meet condition E. It does not matter if there is a gap between leases as long as the plant or machinery is not used for leasing other than long funding leasing. Plant or machinery that has been leased out under a lease that is not a long funding lease will not meet this condition.
  • the lease may be an eligible lease if the lessor and lessee make a valid election under CAA01/S227, see BLM24070.

The lease may be an eligible lease if the plant or machinery is not new but replaces similar plant or machinery, see BLM24075.