BLM16030 - Lease accounting: leasebacks and sub-leases: lease and leaseback
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
A lease and leaseback is almost certainly part of a scheme to avoid tax, whether the leaseback is an operating lease or a finance lease.
FRS 102 20.3A(b) confirms that determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether the arrangement contains a right to use the asset. This will be the case where the arrangement conveys to the purchaser the right to control the use of the underlying asset.
The accounting for a lease and leaseback will therefore follow the substance of the transaction. Where there is a sequence of transactions that do not convey the right to use an asset they should not be accounted for as a lease. Therefore, if a party’s right to use an asset is the same after a series of transactions as before them, the arrangements will fall out of being recognised as a lease. Accordingly, the accounting treatment should follow the substance of the arrangements taken as a whole.
You should seek advice from your Advisory Accountant if the accounting treatment of a lease and leaseback arrangement is material.