Finance Leasing Manual - FLM1.31

Primary and secondary periods

A finance lease will usually be split into 'primary' and 'secondary' periods. The 'loan' (with the 'interest') is repaid during the primary period. Once that is over the lessee usually has the option to continue to hire the asset for a nominal rent during the secondary period (or periods), either indefinitely or for at least the remaining useful life of the asset.

The parties have to avoid any provision under which the lessee might become the owner of machinery or plant. If they don't, Section 60 CAA 1990 may apply and treat the lessee (not the lessor) as the owner for capital allowances purposes. But note that Section 60 only applies to machinery and plant; there is no equivalent rule for other capital allowances codes, for example industrial buildings allowance.