It is not uncommon for one lessor to be replaced with another
lessor, or one lessee to be replaced with another lessee.
Commonly, such a transfer will be made via a sale and
novation, which creates a new lease contract. Without special
rules, it would be necessary to consider whether the new lease was
a long funding lease or not. However if the terms of the lease
remain substantially unchanged – or more correctly, the terms
of the new lease are substantially similar to the unexpired part of
the original lease – there are rules to ensure that the lease
remains classified in the same way before and after the transfer.
(See
BLM22060 for the meaning of
‘transfer’.)
CAA01/S70W and CAA01/S70X deal with the transfer of leased
plant or machinery from one lessor to another and one lessee to
another, respectively. The transfer of a leased asset (together
with the lease) usually involves the novation of the lease contract
and so the creation of a new lease from the new lessor to the
existing lessee or from the existing lessor to the new lessee.
In broad terms, the effect of these sections is to allow the
taxation of the old and new lessors (and lessees) to proceed
independently whilst preserving the classification of the original
lease as a long funding lease or otherwise, but only if the
arrangements remain essentially the same apart from the change in
lessor or lessee.
Further guidance is at
