Commentary

B3.340H Finance leasebacks and leasebacks of plant and machinery

Business tax
Business tax | Commentary

B3.340H Finance leasebacks and leasebacks of plant and machinery

Business tax | Commentary

B3.340H Finance leasebacks and leasebacks of plant and machinery

A finance lease is often used to finance the initial purchase of assets for use in a business. However, it is also possible for existing assets to be sold to a finance lessor and then leased back without them ever leaving the lessee's business premises perhaps to refinance existing borrowing or to obtain general business finance. For accounting purposes a leaseback may be classified as either a finance lease or an operating lease. A finance lease is a lease that transfers substantially all the risks and rewards of ownership of an asset to the lessee. All other leases are operating leases. The lease type is defined independently by the lessor and lessee. So a lease may be a finance lease for the lessor but an operating lease for the lessee and vice versa.

Special provisions can apply to finance leasebacks and leasebacks which are not finance leases, though not all provisions apply to both.

Meaning of sale and finance leaseback

Broadly there is a sale and finance leaseback if a person carrying on a qualifying activity sells an asset used in that qualifying activity and leases it back under a finance lease. More specifically it applies where:

  1.  

    •     B enters into a relevant transaction (see B3.365) with S

  2.  

    •     after the date of the transaction, the plant or machinery

    1.  

      •     continues to be used for a qualifying activity by S, or

    2.  

      •     is used for a qualifying activity carried on by S without

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