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HMRC internal manual

Business Leasing Manual

Taxation of long funding leases: Lessees: Additional capital expenditure

CAA01/S70D provides for lessees under long funding finance leases to be entitled to further capital allowances where the lessor incurs additional expenditure on the asset (perhaps enhancing it to increase capacity). The corresponding increase in the present value of the minimum lease payments qualifies for capital allowances.

There is no equivalent of CAA01/S70D for lessees under long funding operating leases. The amount on which capital allowances is claimed remains the same, as does the limit on deductions (see BLM42040). It follows that a lessee under a long funding operating lease will receive relief as a revenue deduction for any increased rentals payable.

CAA01/S70D also applies to leases that are, exceptionally, accounted for as loans.