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HMRC internal manual

Business Leasing Manual

Defining long funding leases: miscellaneous definitions: assets that take a long time to construct

A lessor may make stage payments to a manufacturer prior to commencement but under GAAP these are not recognised as the net investment in the lease until the asset is bought into use by the lessee, or that date from which rentals first accrue if earlier (SSAP21 - inception), or the date from which the lessee is entitled to use the asset (FRS102 Section 20, IFRS and FRS101 - commencement).

For tax purposes, such arrangements are regarded as leases of plant or machinery from inception (BLM20160).


A lessor bank pays for a ship by three instalments of £10m on 1 June 2007, 1 June 2008 and 1 June 2009. The ship is leased out under a long funding finance lease and delivered to the lessee immediately it is complete on 1 June 2009.

The lessor records its investments of £10m on 1 June 2007 and £20m on 1 June 2008 as financial assets. The lessor’s net investment in the lease is first recognised at inception (SSAP21) or the commencement (FRS102, Section 20, IFRS and FRS101) of the term of the lease on 1 June 2009 as £30m.