Taxes Consolidation Act 1997 section 299

Allowances to lessees

Section 299 sets out the tax treatment for machinery or plant leases where the lessee bears the burden of wear and tear, allowing capital allowances to transfer from the lessor to the lessee and prescribing how lease income and expenses are computed for tax purposes.

• Where machinery or plant is leased under a relevant lease and the lessee is contractually bound to maintain the asset and bear the cost of wear and tear, the lessee is treated as having incurred the capital expenditure on the asset for the purposes of claiming wear and tear allowances.
• A relevant lease is either a finance lease or an operating lease that meets specific thresholds at inception, including present value of lease payments at 80 per cent or more of fair value, a lease term of at least 65 per cent of the asset's useful life, and a likelihood that the asset will pass to the lessee.
• Lessees compute their deductible lease payments in accordance with generally accepted accounting practice, while corporate lessors calculate their lease income using finance lease accounting rules regardless of how the lease is classified in their accounts.
• Anti-avoidance provisions restrict the use of these rules where leases are not entered into for genuine commercial reasons, where tax advantages are priced into the arrangement, or where cross-border leases between associated enterprises generate excessive tax relief.