BLM00705 - Introduction: why lease: overview of tax and other benefits of leasing

BLM00710 gives a very brief overview of how the tax advantages of a lease arise. Tax advantages are traditionally associated with longer finance leases, but can also arise on shorter (say 5-year) finance leases and certain operating leases.

In principle, the tax advantage of a finance lease of plant or machinery over a loan arises from the timing gains which may be generated by the capital allowances due to the lessor. Capital allowances should not, in principle, generate an ‘extra’ relief overall.

However, lessors and their advisers have devised - and continue to be very active in devising - various avoidance schemes which distort this basic analysis. There is an overview of leasing anti-avoidance rules at BLM01000.