The timing benefits of leasing are particularly apparent
where the asset-user is not liable to tax, either because of an
exemption (as with Government Departments or Local Authorities),
because of other reliefs (such as accumulated losses), or because
they are outside the UK tax net. The finance lessor can take
advantage of the capital allowances and feed the benefit through to
the lessee in the form of lower rentals but there is no way in
which the lessee could utilise the allowances.
In principle, the fact that the lessee is not liable to tax
should still make no overall difference to the taxable profits. The
lessee is outside the tax net so leasing doesn't change its tax
position. If the lessee takes a loan to fund an asset the bank will
be liable to tax only on the interest earnings. In the case of a
finance lease, the lessor should be liable on the gross rentals
(capital plus interest) less the capital allowances. If capital
allowances are due on the full capital cost, the net amount taxable
is again the interest.
