Finance Leasing Manual - FLM4.26

SSAP21: finance lessee: depreciation deduction

It is unlikely that an asset will be depreciated over less than the primary period of the lease (the term of the 'loan'). Normally, lessors like to lease assets for a primary period which is shorter than the life of the asset so that they have the maximum security if something goes wrong. In other words, they want the asset always to be worth more than the outstanding debt. It would be a legitimate cause for enquiry under SP3/91 if an asset is depreciated over less than the primary period of the lease: see FLM12.65.