BLM17042 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): lease modification
Source: gov.uk (2025-08-28)


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 (https://www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm50000) chapter.

Lease modifications are defined as ‘A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term).’ (IFRS 16 Appendix A Defined Terms; FRS 102 (2024 amendments) Glossary).

A lease modification may, or may not, result in it being accounted for as a separate lease.

A lessee shall account for a lease modification as a separate lease if both:

‘(a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

(b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.’ (IFRS 16:44; FRS 102 (2024 amendments) 20.70)

Where the modification is not accounted for a separate lease, the lessee accounts for the remeasurement of the liability under IFRS 16 by:

‘(a) decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease. The lessee shall recognise in profit or loss any gain or loss relating to the partial or full termination of the lease.

(b) making corresponding adjustment to the right-of-use asset for all other lease modifications. (IFRS 16:46)

The requirements under FRS 102 (2024 amendments) are similar:

‘For a lease modification that is not accounted for as a separate lease, having remeasured the lease liability [...], a lessee shall:

(a) for lease modifications that decrease the scope of the lease, recognise a proportionate reduction in the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, account for any incoming resources from a government grant or non-exchange transaction [...] in the modified lease, and recognise any resulting gain or loss in profit or loss.

(b) for all other lease modifications, make a corresponding adjustment to the right-of-use asset, net of any adjustment for incoming resources from a government grant or non-exchange transaction [...] in the modified lease. (FRS 102 (2024 amendments) 20.73).

Covid-19 Rent Concessions

The IASB issued temporary amendments to IFRS 16 in response to the Covid-19 pandemic: ‘Covid-19 Related Rent Concessions (Amendments to IFRS 16 (May 2020) and Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) (March 2021).

The amendment was a practical expedient giving lessees the option to account for COVID-19 related rent concessions as if they were not lease modifications, even though the arrangement may meet the definition above. The amendments expired on 30 June 2022.

FRS 102 (2024 amendments) does not contain reference to COVID-19 rent concessions. See BLM12025 (https://www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm12025) for the equivalent reference under FRS 102 (pre 2024 amendments), which also expired in June 2022.

If you have any queries relating to Covid-19 Related Rent Concessions, please contact an Advisory Accountant.