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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Taxation of long funding leases: basic principles: lessors - income and expenditure

 Where a lease is not a long funding lease a lessor is taxed on the full amount rentals receivable under the lease, see BLM33005.

Where the leased asset is plant or machinery the availability of capital allowances means that, over the life of the lease, the lessor is taxed on its commercial profit.

As capital allowances are not available to a lessor under a long funding lease that is recognised in taxing the income.

Conversely, as a long funding lessee is entitled to claim capital allowances it is necessary to restrict the amount of the rentals payable which may be deducted in computing profits.

The appropriate rules are set out in

  • CTA10/Part 9/Chapters 1 and 2 for corporation tax,
  • ITTOIA05/Part 2/Chapter 10A for income tax.

The rules are essentially identical except for the fact that the corporation tax rules have special provisions for insurance companies. A list of the relevant legislation, including historic ICTA 1988 references can be found at BLM20025.