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HMRC internal manual

Business Leasing Manual

Taxation of lease that are not long funding leases: overseas leasing: general

Prior to FA 2006 there were rules that restricted that availability of capital allowances where a UK Lessor leased to an overseas lessee (CA24000). These rules are being phased out and although they continue to apply to leases entered into before 1 April 2006, they no longer apply to leases entered into on or after that date.

The introduction of the long funding lease rules by FA 2006 limits the type of leases that can benefit from the tax-timing benefits that capital allowances provide. However tax-timing benefits are still available and it is certainly the case that overseas leasing is seen as an attractive business opportunity in the right circumstances. Indeed, specialist press reports have suggested that there is more overseas leasing than HMRC might have expected.

Tax-based leasing inevitably carries a cost to the UK Exchequer. In the case of overseas leasing that cost is not usually matched by a compensating benefit to the UK economy.

Some cross-border leases involve simple finance leases of no more than 5 years or simple operating leases that are not long funding leases; others involve more complex arrangements that attempt to maximise the tax benefits in ways that were not anticipated when the long funding lease rules were introduced. Such schemes may or may not have the result the parties intend.

All cross border leases where -

  • one party to the lease is entitled to claim capital allowances, and
  • the cost of the asset exceeds £10m

should be notified to HMRC under the Tax Avoidance Disclosure Regulations, see BLM31010.