MTT32060 - Calculating top-up amounts: Substance based income exclusion: Leased assets and dual use assets
Source: gov.uk (2025-08-05)


The lessee

A lessee is able to include amounts in relation to leased assets in its eligible tangible fixed asset amount, in accordance with the accounting treatment.

For an asset subject to a finance lease, the lessee will be able to include the eligible amount recorded in its accounts in relation to the asset. This is because a finance lease is accounted for as a transfer of the underlying asset to the lessee.

For an asset subject to an operating lease, the lessee will be able to include the eligible amount recorded in its accounts as a right-of-use asset.

The other rules that apply to the eligible tangible asset amount still apply in regard to leased assets, see MTT32030 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32030)and MTT32050 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32050).

Assets held for lease – the lessor

Normally, where an asset is held for a lease, it is excluded from being an eligible tangible asset (see MTT32030 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32030)).

However, where:
- a member of a group holds property for lease,
- the property is located in the member’s territory, and
- the lease is accounted for in the underlying profits accounts of the member as an operating lease,
then the asset held for lease can be regarded as an eligible tangible asset for the member.

This overrides the normal exclusion for property held for lease (see MTT32030 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32030)). Assets held for lease under a finance lease are still excluded from the SBIE.

The eligible tangible asset amount for an asset held for lease is calculated differently depending on whether the asset is a short-term rental asset.

If the asset is a short-term rental asset for that period, its eligible tangible asset amount can be included in full.

If the asset is not a short-term rental asset for that period, the carrying value of the asset is reduced for the purposes of calculating the eligible tangible asset amount. The carrying value as recorded at the start or end of the period should be reduced by the right-of-use amount for the property at that time.

The other rules that apply to the eligible tangible asset amount still apply in regards to leased assets (see MTT32030 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32030)and MTT32050 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32050)).

Short-term rental asset

A short-term rental asset is an asset which is held for lease (under terms classed as an operating lease) where:
- the property was leased regularly during that period to different lessees, and
- the average length of the lease periods is no greater than 30 days.
Right-of-use amount

The calculation of right-of-use amount at the start or end of the period differs depending on whether the lessee and lessor are part of the same group. This is because the lessor will not necessarily know the right-of-use amount recorded in the lessee’s accounts when they are not in the same group.

Where they are members of the same group, the right-of-use amount is the carrying value of the lessee’s right-of-use asset recorded in relation to the property at that time.

Where the lessee and lessor are not members of the same group, the right-of-use amount is the undiscounted value of any outstanding payments under the lease at that time.

The undiscounted value of any outstanding payments should be determined by applying the same accounting standard used when calculating the underlying profits of the lessee.

The undiscounted value should also include the value of any outstanding payments that would be due under any extension to the lease, where these would be accounted for in accordance with that standard.

Dual use assets

An asset is considered to be dual use where:
- part of the asset comprising property is held for lease by a member, and
- another part of that property is retained for use by the member.
Where there is a dual use asset, the two parts should be treated as separate assets for substance based income exclusion purposes.

The carrying value of the asset should be allocated between the notional separate assets on a just and reasonable basis.