Capital Allowances Act 2001 section 70P

The useful economic life test

Section 70P defines the useful economic life test, which determines whether a lease term covers a sufficiently large proportion of the remaining useful life of the plant or machinery being leased.

• The useful economic life test is one of the conditions used to classify certain leases of plant or machinery for capital allowances purposes.
• A lease meets the test if its term exceeds 65% of the remaining useful economic life of the leased plant or machinery.
• The comparison is between the lease term and the remaining useful economic life at the point the lease is entered into, not the original total useful life of the asset.
• If the lease meets this test, it may be treated as a long funding lease, which affects how capital allowances are claimed by the lessor and lessee.