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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: leases with option for lessee to purchase the leased asset: whether CAA01/S67 applies

Where, in the case of a lease of plant or machinery, there is an option for the lessee to buy the asset the rules in CAA01/S67 may give the right to claim capital allowances to the lessee, see CA23310

CAA01/S67 applies to a lease contract where:

  • the expenditure is incurred under a contract providing that the lessee shall or may become the owner of the plant or machinery on the performance of the contract, and
  • the lessee incurs capital expenditure on the provision of plant or machinery for the purposes of a qualifying activity (typically a trade, but see CA20010).

Where a contract contains an option it is clear that the first of these conditions is met. But to fall with s.67 the lessee must meet the second condition and incur capital expenditure - BLM39010.