Finance Leasing Manual - FLM6.64

Sales and leasebacks

The sale and leaseback of assets belonging to a person can be a useful means of releasing the capital tied up in the assets or of raising new finance. But it could also be exploited to obtain additional tax benefits by transferring to the lessor the benefit of past allowances which the lessee was either unable to claim or unable to use, for instance by non-taxpayers or tax exhausted persons. Section 46(2) F(No 2)A 1997 counters such arrangements.

Section 46(2) F(No 2)A 1997 applies where machinery or plant is sold and leased back under a finance lease. It limits the disposal value to the vendor and the amount on which capital allowances can be claimed by the lessor to the notional written down value of the asset, calculated by writing down the original cost of the asset to the lessee on the basis that allowances were due and given.

General guidance on sale and leaseback transactions is at FLM13.01 onwards.