A finance lease is one in which the lessor retains legal ownership of the asset leased but the risks and benefits of ownership are transferred to the lessee. It will usually contain a provision under which, at the end of the term of the lease, the lessee can continue to use the asset or can require the lessor to purchase it from him. Normally, the rental payments are fixed to give the lessor a return equal to the cost of the asset plus an amount equivalent to interest. For tax treatment of leases generally see Division B5.4.
The following paragraphs provide details of specific rules which relate to capital allowances on finance leases.
Meaning of finance lease
For capital allowances purposes, a finance lease is one which is so treated under generally accepted accountancy practice1. Under generally accepted accountancy practice such a lease by a UK company is treated in the accounts of the lessor as a loan to fund the purchase of the asset by the lessee and in the accounts of the lessee
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