Finance Leasing Manual - FLM12.54

Nature of asset: what payments are for

It should not invariably be assumed that because something is described as a finance lease it must follow that what is paid under the agreement is (revenue) payments of rent. It is important to step back from the detail of the transaction and to consider the nature of the asset and what the payments are for.

For example, there have been instances in which 999 year leases of land are being acquired in the form of what is purported to be finance lease rentals. If the true effect of such a lease is that an interest in land has been created and is being paid for in the form of capital instalments described as rent, the payments are capital for tax purposes - see FLM11.11 onwards.