Finance Leasing Manual - FLM3.01

Tax and other benefits of finance leasing: overview

The following paragraphs give a brief overview of how the tax advantages of a finance lease arise. Further guidance is at FLM6.01 onwards.

In principle, the tax advantage of a finance lease (for, say, machinery and plant) over a loan should arise from the timing gains which may be generated by the capital allowances due to the lessor. Capital allowances should not, in principle, generate an 'extra' relief overall. However, lessors have devised various schemes which distorted this basic analysis. Most of the known schemes were dealt with in FA 1997 and F(No 2)A 1997 (see FLM6.50 onwards), but others may be devised by tax planners.