BLM16030 - Lease accounting: leasebacks and sub-leases: lease and leaseback, subleases and back-to-back leases
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.

This section is applicable to entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).

See BLM17000 (https://www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm17000) for lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).

Accounting for Sale and leaseback under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments) is covered at BLM17045 (https://www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm17045).

Guidance on the tax consequences of sale and leasebacks is at BLM35000 (https://www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm35000) onwards.

Lease and leaseback

FRS 102 (pre 2024 amendments) 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.

Subleases and back-to-back leases

Not all leasing arrangements involve one lessor and one lessee. It is quite possible (and commercially common) for several parties to be involved so that A leases to B who leases to C and so on. There are a few ways in which this might arise:

each lease may be entered into at the same time.

A may enter into a lease with B who later enters into a sub-lease with C; the lease between A and B becomes the head lease.

B may enter into a lease with C and, at a later date B may enter into a head lease by selling the leased asset to A and leasing it back.

A may enter a lease with C and at a later date B is interposed so that A leases to B who sub-leases to C.

These arrangements may be entered into for perfectly ordinary commercial reasons. For example, a car-rental company may lease 100 cars from a head lessor and lease them on to 100 individual lessees.

Chains of leases are also a common feature of avoidance schemes.

There are many variations on these arrangements involving combinations of finance leases operating leases or both. Furthermore, the rentals, rights and obligations under each lease can vary substantially and it is not possible for the accounting standards to give detailed guidance on each type. You should seek advice from your Advisory Accountant for such cases.