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HMRC internal manual

Capital Allowances Manual

PMA: Overseas leasing: Outline and definitions

CAA01/S105 & CAA01/S126 (1)


When plant or machinery that qualifies for capital allowances is leased, other than on a short-term basis, the lessor usually shares the benefit of the capital allowances he, she or it expects to receive with the lessee by taking the capital allowances into account when the rent is fixed. In this context the benefit of capital allowances broadly means the extent to which such allowances are given at a rate greater than the commercial depreciation of the plant or machinery.

The overseas leasing legislation reduces to 10% CA24200 the annual rate of capital allowances on plant or machinery that is leased to a person resident overseas. The annual rate of WDA on plant or machinery used for overseas leasing is reduced to ensure that leases of plant or machinery to lessees with little or no connection to the UK are not tax subsidised. Sometimes there are no allowances at all when plant or machinery is used for overseas leasing.


The overseas leasing legislation applies to expenditure incurred on the provision of plant or machinery that at any time in the designated period CA24050 is used for overseas leasing that is not protected leasing CA24100. Where the overseas leasing legislation applies WDAs are given at an annual rate of 10%. If the lease has certain properties there are no WDAs at all CA24300.

The overseas leasing rules do not apply where overseas leasing takes place after the designated period has ended or where the leasing to the person resident overseas is protected leasing CA24100.

Where there is a chain of leases, the overseas leasing legislation applies if:

  • any person in the chain is resident overseas,
  • that person does not use the plant or machinery exclusively for earning profits chargeable to tax, and
  • the lease to that person is not protected leasing.


The fact that the end lessee is resident in the UK or the leasing to the end lessee is protected leasing is not enough to stop the overseas leasing legislation applying where there is another lessee in the chain that is an overseas lessee.

Example Cass, Jack and Ollie are resident in the UK. Ollie’s trade includes operating ships. Cass buys a ship and leases it to Jack, who leases it to Ollie. Ollie lets the ship on voyage charter to Terry, who is resident outside the UK. This means that Ollie’s lease to Terry is protected leasing and so the overseas leasing legislation does not apply even though Terry is resident outside the UK. If either Jack or Ollie is an overseas lessee the overseas leasing legislation will apply because the leasing to them is not protected leasing.

If plant or machinery first begins to be used for overseas leasing, which is not protected leasing, after it has been used for some other qualifying purpose there is a balancing adjustment to recover excess allowances CA24210.


An overseas lessee is a lessee that:

  • is not resident in the UK, and
  • does not use the plant or machinery exclusively for earning profits chargeable to tax.


Plant or machinery is used for overseas leasing if the lessee is an overseas lessee.

For the purposes of the overseas leasing legislation profits chargeable to tax are profits that are chargeable to UK tax. Treat profits made from the exploration or exploitation of the seabed that are chargeable to UK tax under ICTA88/S830 (4) as profits chargeable to tax. Do not treat profits exempt under a double taxation agreement as profits chargeable to tax.

Leasing has an extended meaning in the overseas leasing legislation. In it leasing includes letting:

  • a ship or aircraft on charter, or
  • any other asset on hire,


and lease includes a sub-lease.

A lease is an agreement under which a person (the lessor) grants another person (the lessee) exclusive possession of a chattel at a given rent for a given term.

The head lessor is the person who owns an asset and leases it out.

An intermediate lessor is a person who leases in (hires) an asset from one person and then leases it out to another person.

The end lessee is the person who leases in (hires) an asset and uses it for an activity other than leasing.


  • Lily owns a yacht,
  • Lily leases the yacht to Rosemary, and
  • Rosemary leases the yacht to Jack.


The lease from Lily to Rosemary is the head lease and the lease from Rosemary to Jack is a sub lease. Both are leases for the purposes of the leasing legislation.

For any lease there is one and only one head lessor and end lessee but there can be several intermediate lessors.

In the example above:

  • Lily is the head lessor;
  • Rosemary is an intermediate lessor, and
  • Jack is the end lessee.


A normal writing down allowance is writing down allowance at the annual rate for the main pool FA2011 reduced the rate of WDAs for the main pool from 20% to 18% from 1 April 2012 (CT) and 6 April 2012 (IT)