Just as a finance lease may be a convenient (and often tax
efficient) means of financing the initial purchase of assets for
use in a business, so existing assets may be sold to a finance
lessor and then leased back (without ever leaving the
lessee’s business premises) in order to refinance existing
borrowing or to obtain general business finance. Because the user
sells the legal title in the assets to the finance lessor, then,
assuming the leaseback is not a long funding lease, the lessor may
claim capital allowances, the benefit of which filters through to
the lessee in the form of more favourable rental terms, in effect
reducing the interest on the business finance provided.
For accounting purposes the leaseback may be classified as
either a finance lease or an operating lease.
Guidance on the tax consequences of sale and leasebacks is at
BLM35000 onwards. This also includes an
example of the accounting.
