BLM20110 - Defining long funding leases: basic definition: leased plant or machinery beginning to be used for a qualifying purpose (CAA1/S70G (2) and (3))

Where plant or machinery is not being used for the purpose of a qualifying activity (usually a trade, but see CAA01/S15) at the commencement of the term of the lease but later begins to be used for the purpose of a qualifying activity the lease is a long funding lease if it would have been a long funding lease had the plant or machinery been used for a qualifying activity at inception.

When a lessor or lessee begins to carry on a qualifying activity, and so come within the charge to tax, it is necessary to decide whether it is a long funding lease or not. Subsections (2) and (3) of CAA01/S70G mean that you should consider whether the lease would have been a long funding lease at inception. It does not matter that

• the lessor (or lessee, as appropriate) was not resident in the UK at inception, nor that
• inception was before 1 April 2006.

The rule may apply where, for example, a leased asset was used for a non-business purpose or whilst the lessor or lessee (as appropriate) was not resident in the UK and not trading in the UK.

The rules in CAA01/S70G (2) and (3), in conjunction with the transitional rules in CAA01/SCH8 ( BLM23020), mean, for example, that where a lessor becomes resident in the UK after 17 May 2006 the lease will be taxed as long funding lease if it would have been classified as a long funding lease at inception.

In the case of a lessee beginning to carry on a qualifying activity in making this decision the provisions of CAA01/S70H ( BLM20120) are ignored.

See also BLM20160 for link with CAA01/S70K (5).