Finance Leasing Manual - FLM23.01

Intermediate lessors: introduction

Lessors calculate rentals on the assumption that they have sufficient 'tax capacity' (that is profits otherwise chargeable to tax) to make use of the capital allowances arising in at least the first year of the leases they write. They may be able to make use of the capital allowances arising in later periods.

A lessor company may be able to generate more new business than its group has the tax capacity to cover. Rather than turn the business down, the lessor may arrange a sale and leaseback of the leased assets to another group which has spare tax capacity to cover. This is generally known as 'backing out', see FLM23.02 onwards.