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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: finance lessees: termination adjustments: one finance lease substituted for another

Any rebate or further rental arising on the substitution of one finance lease for another in respect of the same asset will also be a revenue item for tax purposes. Where the correct accounting treatment is to regard the sum in question as an adjustment of the finance charge element of rentals under the replacement lease, that treatment may be followed for tax purposes.

Note that where one finance lease is substituted for another after 1 April 2006 the new lease may be a long funding lease (see BLM20000 onwards, but particularly BLM20120). This should not affect when the finance charge element is allowable as a deduction, even though it would deny the lessee a deduction for the capital element of the lease rentals.