There are special rules for plant and machinery acquired for
leasing out under a finance lease.
First, the expenditure that qualifies for capital allowances
is time apportioned in the first year
CA28450. This counters the use of finance
leases to accelerate the benefit of capital allowances on the
leased asset.
Second, where the asset has been sold and leased back under a
finance lease, the amount on which allowances are given is limited
to the notional written down value to the seller. The disposal
value to the seller is also limited to the same amount. In addition
there are no first- year allowances
CA28550.
Third, where the asset has been sold and leased back under
arrangements that remove the greater part of the risk that the
lessee will not meet its obligations under the lease, no allowances
are given to the lessor
CA28600. This can happen for example when
the lease is on
defeased terms.
Defeasance is a term used to describe arrangements
where a third party takes over the lessee's obligations to pay
rentals in return for a lump sum payment, or guarantees rentals in
return for a dedicated cash deposit that the lessee can only
withdraw to pay them.
The latter two rules counter arrangements to transfer the
benefit of unused allowances to a finance lessor.
A
finance lease is an arrangement or arrangements
that under normal accountancy practice in the UK would fall to be
treated as a finance lease or a loan in the accounts or
consolidated accounts of the lessor or any person connected with
the lessor. Normal UK accountancy practice is set out in Statement
of Standard Accounting Practice SSAP21 ‘Accounting for leases
and hire purchase contracts’ (see BIM61030). The reference to
normal UK accountancy practice is there in order to apply the
normal accounting practice applicable to a company incorporated in
the UK, that is Generally Accepted Accounting Practice in the UK,
to the accounts of the lessor and persons connected with the
lessor. It does not impose any requirement that either the lessor
or any of the persons connected with the lessor is a company
incorporated in the UK.
There is one exception to this definition. Arrangements that
are a long funding lease for the lessor are
not a finance lease.
