Finance Leasing Manual - FLM28.16

Income-into-capital schemes: objectionable features

Successive Governments have taken the view that finance leasing enjoys a favourable fiscal régime. Finance lessors are given capital allowances on assets which, in economic and commercial substance, they do not own. The quid pro quo is that the lessor should pay tax on the 'interest' and 'capital' elements in the lease rentals. The 'income-into-capital' scheme avoids tax on both elements of the rentals and any arrangements which do this are objectionable. They are tantamount to the creation of incentive rates of first-year allowance by another name.