Finance Leasing Manual - FLM3.16

Whether to lease or to borrow

Potential lessees have various choices apart from leasing. They could borrow all or part of the money and buy the asset themselves, so getting the benefit of the capital allowances due (assuming the lessee pays tax). One of the factors in the choice of methods of finance is the lessee's tax position. A lessee which has no current tax liability, or who pays tax at less than the full rate of corporation tax, is more likely to benefit from leasing than one who is taxable at the full rate. But where very expensive assets are leased ('big ticket' leasing) even small timing differences can be important.

For both lender and lessor the major revenue expense will be the interest payable on the borrowing used to fund the loans or the finance leases.

Working out the pros and cons of leasing over buying is a complex issue. FLM6.01 onwards has more about it.