Finance Leasing Manual - FLM5.01

Tax treatment of finance leasing: detail

When SSAP 21 accounting treatment was introduced in 1984 the Government decided at that time not to follow the same 'substance-over-form' approach for tax purposes. The tax system continues to regard a finance lease as the hire of an asset and not as a loan.

Lessor

The finance lessor, as the legal owner of the kit, continues to get the capital allowances and other reliefs for capital expenditure, such as the film reliefs.

Lessee

The finance lessee gets no capital allowances but continues to get relief for the gross rentals which, in total, equal the capital cost of the kit (the 'loan') and the 'interest' on the 'loan'.