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HMRC internal manual

Business Leasing Manual

Plant and machinery leasing - Anti-avoidance: Long funding lease / Non-long funding lease interaction: International leasing

S70V CAA 2001

Using the long funding leasing rules it is possible for a non-UK resident head lessor to lease plant or machinery to a non-UK resident sub lessee via a UK resident intermediate lessor in such a way that the capital allowances are left in the UK.

Structuring a lease this way is not forbidden in itself but where the ‘dip’ into the UK is solely to benefit from the capital allowances and the UK entity has no commercial interest in the lease at all these arrangements will then fall within the anti-avoidance provisions of the long funding leasing rules.


A non-UK resident lessor may lease an asset directly or indirectly to a UK resident intermediate lessor who treats the lease as a long funding lease or a hire purchase contract within section 67 CAA 2001 (CA23300), i.e. the are treated as the owner of the asset for capital allowance purposes.

The UK resident intermediate lessor may then lease the asset to a non-UK resident lessee under a lease that it does not treat as a long funding lease. This means that the UK resident keeps the capital allowances because there is no disposal event. The overall effect is that a non-UK resident lessor has leased an asset to a non-UK resident lessee but by passing the asset through a person that is a UK resident somebody has obtained UK capital allowances.

If the sole or main purpose of arranging the leases that way is for the UK resident intermediate lessor to get capital allowances, then section 70V CAA 2001 acts to treat the lease from the UK resident intermediate lessor to the non-UK resident lessee as a long funding lease.

This means that the intermediate lessor has acquired the asset for the purpose of leasing under a long funding lease and the expenditure is prevented from being qualifying expenditure by section 34A CAA 2001. Alternatively if the UK resident intermediate lessor has treated its expenditure under the lease from the non-UK resident lessor as qualifying expenditure then it means that the UK lessor has to bring a disposal value into account on the grant of the sublease.

If you have a case where an overseas lessor leases to an overseas lessee via a UK resident and the UK resident claims capital allowances then you should assume that the main purpose or one of the main purposes, of the arrangements is to let the UK resident claim capital allowances. If the taxpayer does not believe that the legislation should apply then it is up to them to explain why the UK resident was inserted into the chain. For example, they should explain why the non-UK resident lessor could not lease the asset directly to the non-UK resident lessee.