Finance Leasing Manual - FLM3.05

Timing advantages

Where the finance lessor has been able to create an edge over other forms of finance is through the timing differences: the finance lessor may be able to

• use the upfront title to capital allowances to defer a tax charge on part of the interest, and

• feed some of the value of this deferral on to the lessee in the form of lower lease rentals.

Because of the timing advantages of a finance lease which tax can create, the interest rate built into the lease rentals may be less than the interest on an equivalent loan - the lessor shares the value of the deferment of tax liability with the lessee.