Capital Allowances Act 2001 section 70M

Derived leases of plant or machinery: term and rentals

Section 70M sets out the rules for determining the term and notional rentals of a derived lease of plant or machinery that arises when a mixed lease (covering both plant or machinery and other assets) is split into separate notional leases.

• Where a mixed lease is split, any question of whether the resulting derived lease for the plant or machinery element is a plant or machinery lease — and whether it qualifies as a long funding lease — is determined under the normal capital allowances rules.
• The term of the derived lease cannot exceed the remaining useful economic life of the plant or machinery at the point the derived lease begins, but is otherwise worked out using the standard lease-term rules.
• The rentals treated as payable under the derived lease ("deemed rentals") must be just and reasonable in all the circumstances, and are assumed to be payable in equal instalments over the lease term unless a different payment profile is more appropriate.
• When calculating the deemed rentals, relevant factors include the provisions of the original mixed lease, the nature and value of the plant or machinery, its expected market value at the end of the derived lease term, its remaining useful economic life, and the term of the derived lease itself.