Capital Allowances Act 2001 section 70YF

The "term" of a lease

Section 70YF defines how the "term" of a lease is determined for the purposes of the long funding lease rules, including how non-cancellable periods and renewal options affect the lease term, and sets out a special anti-avoidance rule for high-value assets.

• The lease term comprises the non-cancellable period after the lease commences, plus any further periods where the lessee has a renewal option that is reasonably certain to be exercised.
• A non-cancellable period is one where the lessee can only terminate the lease on the occurrence of a remote contingency, or by making a payment large enough that continuation is reasonably certain.
• Where the asset's market value exceeds £1 million at the start of the lease and its estimated value after 7 years is more than half of its starting value, a special rule applies to extend the term beyond 7 years if renewal options exist and penalties apply for not exercising them.
• Under the special rule, any option to continue leasing is assumed to be exercised unless it is reasonably certain at the inception of the lease that the lessee will not exercise it.