Capital Allowances Act 2001 section 70YB

Long funding operating lease: extension of term of lease

Section 70YB deals with what happens for capital allowances purposes when the term of a long funding operating lease is extended, but the lease remains classified as an operating lease in the accounts.

• When a long funding operating lease is extended — for example by exercising an option to continue leasing, making an additional period non-cancellable, or by any other means — and the lease remains classified as an operating lease in the accounts, special rules apply.
• The existing lease is treated as having terminated at the end of the day before the "effective date", and a brand new long funding operating lease is treated as starting on the effective date, with a term equal to the remaining unexpired portion of the extended lease.
• The effective date is the earlier of: the day after the end of the original (pre-extension) lease term, or the date on which any rental variation connected with the extension takes effect.
• The replacement lease is automatically treated as a long funding operating lease, so the same capital allowances regime continues to apply without the need for a fresh classification exercise.