What conditions must be met for Chapter 3 of Part 21 of the Corporation Tax Act 2010 to apply to a lease under section 927?

Four conditions must be satisfied: the lease must have been granted on or after 26 November 1996, it must form part of a post-25 November 1996 scheme, condition A in section 902 must have been met at some point, and Chapter 2 must not apply because not all of conditions B to E are satisfied alongside condition A.

When does condition A cease to be treated as met under section 927?

Once condition A has been met, it is treated as continuing to be met unless one of two events occurs: the asset ceases to be leased under the lease, or the lessor's interest is assigned to a person who is genuinely unconnected with the assignor, any previous lessor, or any person who subsequently becomes lessor under related arrangements.

Are long funding leases subject to Chapter 3 of the Corporation Tax Act 2010?

No. Section 927 expressly excludes long funding leases as defined in Chapter 6A of Part 2 of the Capital Allowances Act 2001. For such leases, capital allowances are given to the lessee rather than the lessor, and the lessor's rental earnings are taxed separately under Chapter 2 of Part 9 of the Corporation Tax Act 2010.

Can Chapter 3 reapply to a lease after condition A ceases to be treated as met following an assignment?

Yes. Even where condition A ceases to be treated as met because the lessor's interest has been assigned to a genuinely unconnected party, Chapter 3 can apply again to the same lease if the new lessor independently and freshly satisfies all of the conditions set out in section 927 after the assignment takes place.

Corporation Tax Act 2010 section 927

Leases to which this Chapter applies

Section 927 sets out the conditions that must be satisfied for Chapter 3 (which deals with finance leases where the return is not wholly in capital form) to apply to a particular lease.

The lease must have been granted on or after 26 November 1996 and form part of a scheme entered into after that date
The lease must meet condition A from section 902 (the accountancy-based test) but must fail at least one of the other conditions (B to E) that would otherwise bring it within Chapter 2
Once condition A has been met, it is treated as continuing to be met unless the asset ceases to be leased or the lessor's interest is assigned to a genuinely unconnected party
The Chapter does not apply to long funding leases of plant or machinery where capital allowances are given to the lessee rather than the lessor

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