Suppose a Borrower wants to take out a loan of £10
million from a Bank for ten years at a commercial rate of interest,
say 10%. If the Bank simply lent £10 million the Bank would
pay tax on interest earnings of £1 million a year (after
deductions for its financing and other costs). The main aim of the
'income-into-capital' leasing schemes was to convert the interest
receipt into a non-taxable capital sum. The bank then saves a
£300,000 a year in tax (£1 million at 30%), which
competitive pressures generally ensure is partly passed on to the
Borrower in the form of reduced interest costs.
