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HMRC internal manual

Business Leasing Manual

Plant and machinery leasing - Anti-avoidance: Long funding lease rules: Disposal values: sale or lease and finance leasebacks

Leases commencing on or after 1 April 2006

Whilst the provisions in section 70E CAA 2001 dealing with a long funding lease that terminated early worked appropriately, problems arose when some leases, structured in a particular way, terminated at the end of the full term. These leases benefitted from an unintentionally reduced disposal charge for the lessee on the expiry of the lease. The effect on the disposal values are described at BLM62260 for residual value guarantees, and BLM62270 for market value options.

Prior to 9 October 2007 all leases affected by this application of section 70E CAA 2001 were for terms of at least five years. This was because leases for shorter periods written between 1 April 2006 and 8 October 2007 were short leases under section 70I CAA 2001 and were excluded from being long funding leases.

Leases commencing on or after 9 October 2007

However from 9 October 2007 legislation was introduced at section 70I(10) CAA 2001 to exclude all relevant finance leasebacks, of whatever length, from the short lease exemption to the long funding lease rules.

This meant that from 9 October 2007 leases of less than five years could be written which could fall within the long funding lease rules, and therefore could benefit from reduced disposal values to the lessee under section 70E CAA 2001.

Disposal events on or after 13 November 2008

Section 70E CAA 2001 was amended to stop these unintended benefits to long funding lessees, for long funding leases of any length from 13 November 2008. For disposal events occurring on or after this date the disposal value is determined by the formula

(QE - QA) + R


QE is the person’s qualifying expenditure on the provision of the plant or machinery;

QA is the qualifying amount- representing the capital payments made; and

R is any relevant rebate

If a long funding finance lease terminates, other than in an early termination, before 13 November 2008 and this gives rise to an inappropriately low disposal value (whether due to a residual value guarantee, a market value option or for any other reason) please contact CTIAA.