Finance Leasing Manual - FLM13.01

Finance lessees: sale and leasebacks: introduction

Just as a finance lease may be a convenient (and tax efficient) means of financing the initial purchase of assets for use in a business, so existing assets may be sold to a finance lessor and then leased back (without ever leaving the factory floor) in order to refinance existing borrowing or to obtain general business finance. Because the user sells the legal title in the assets to the finance lessor, the lessor may claim capital allowances, the benefit of which filters through to the lessee in the form of more favourable rental terms.

It is important to remember that there are two legs to the transaction - the sale and the leaseback. Most consideration tends to focus on the lease-back aspect. But the first leg of the transaction involves the finance lessee disposing of an asset, and the treatment of the disposal proceeds should not be overlooked.