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HMRC internal manual

Business Leasing Manual

Taxation of long funding leases: Lessees: Lease rental restriction - Introduction

Lessees under long funding leases obtain relief for part of the lease rental payments by way of capital allowances.

It follows that it is necessary to restrict the relief that would otherwise be available for rentals payable under the lease.

The taxation of income and expenditure is governed by CTA 2010 for corporation tax and by ITTOIA 2005 for income tax. The following guidance refers only to CTA 2010, but essentially the same principles apply to the equivalent sections in ITTOIA 2005.

The equivalent sections are

  • CTA10/S377 = ITTOIA05/S148G
  • CTA10/S378 = ITTOIA05/S148H
  • CTA10/S379-380 = ITTOIA05/S148I

Accounting periods ending prior to 1 April 2010

The provisions applying for Corporation Tax purposes were contained in Sections S502I-502K ICTA 1988.