Finance Leasing Manual - FLM1.15

Finance lease: economic and commercial substance

In order to understand the reality of finance leasing you may find it helpful to think of the rentals under a finance lease for what they are as a matter of economic and commercial substance - that is a combination of:

• 'interest' on a 'loan', and

• repayment of the 'loan'.

But as a matter of general law the rentals are simply the hire charge for an asset. The distinction is important because the tax treatment has tended to follow the legal form rather than the economic substance.