When do the finance lease rules in Chapter 2 of Part 21 of the Corporation Tax Act 2010 apply?

The Chapter applies where a lease of an asset has been granted and the conditions in section 902 have been met at some point during a period of account of the current lessor. The conditions relate to the lessor's return taking a capital form rather than purely an income form.

Are long funding leases excluded from the section 901 finance lease rules?

Yes. If the lease qualifies as a long funding lease under the plant and machinery capital allowances rules in Part 2 of the Capital Allowances Act 2001, this Chapter does not apply. Long funding leases have their own separate regime under which the lessee, rather than the lessor, claims capital allowances.

Do the section 901 finance lease rules continue to apply after a change of lessor?

Once the section 902 conditions have been met, they are treated as continuing to be satisfied for any subsequent lessor. However, continuity breaks if the asset ceases to be leased or the lessor's interest is assigned to a person wholly unconnected with the assignor, any previous lessor, or connected arrangements.

Can the Chapter apply again after an assignment to an unconnected person breaks continuity?

Yes. Even where the Chapter stopped applying because of a qualifying assignment to a wholly unconnected person, the rules can apply again from scratch if the section 902 conditions are independently met afresh during a subsequent period of account of the new lessor. The break does not provide permanent immunity.

Corporation Tax Act 2010 section 901

Application of this Chapter

Section 901 sets out when the finance lease rules in this Chapter apply to a particular lease, including the circumstances in which the rules continue to apply after a change of lessor and the exceptions for long funding leases.

The Chapter applies where a lease has been granted and the conditions in section 902 have been met at some point during a period of account of the current lessor
The Chapter does not apply to long funding leases where capital allowances are given to the lessee rather than the lessor under Part 2 of the Capital Allowances Act 2001
Once the section 902 conditions have been met, they are treated as continuing to be met for subsequent lessors unless the asset ceases to be leased or the lease is assigned to a wholly unconnected person
Even after an assignment that causes the Chapter to stop applying, it can apply again if the conditions are freshly met after that assignment

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