BLM30050 - Taxation of leases that
are not long funding leases: tax advantages: examples comparing
taxable profits of the parties, part 3 of 3
In
Example 1 at
BLM30040:
- the bank's taxable profit is the same as
the commercial profit - the bank is liable on the interest
receivable less expenses payable, including its own interest costs.
The taxable profit on the illustrative figures is therefore the
commercial profit of £20.
- the tax-paying borrower gets a deduction
for the interest payable; it also gets capital allowances on the
capital cost of the machine of £1,000 which, at the end of the
day, will equal the net loss suffered (that is, the cost less sale
or scrap proceeds). So, on the figures in the example, the
borrower's tax deductions amount to £1,200 (being £200
interest and £1,000 of capital allowances). This is the same
as the commercial accounts.
In
Example 2 at
BLM30040:
- The finance lessor is liable to tax on its
gross rentals ('interest' plus 'loan repayment') less capital
allowances, which are equal to the net capital cost of the kit,
and, as before, less expenses, including the lessor's own interest
costs. Thus, after capital allowances, the lessor is taxed on his
'interest' turn, just like the bank. The lessor's taxable profit is
therefore also £20 (being gross rentals of £1,200 less
expenses of £180 and capital allowances of £1,000).
- the tax-paying lessee gets a deduction for
the rentals paid ('loan repayment' plus 'interest') but no capital
allowances. The lessee's tax deductions will be the same as the
borrower's - a total of £1,200 (being £200 'interest' and
£1,000 depreciation).
Overall, the figures for lender and borrower in Examples 1 and 2
at
BLM30040 are the same as for lessor and
lessee, assuming an investment in similar kit at the same price and
with the same payment terms. But see
BLM30200 onwards which outlines some of
the additional complications of real life.
