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HMRC internal manual

Business Leasing Manual

Lease accounting: leasebacks and sub-leases: introduction to sales and leasebacks

Just as a finance lease may be a convenient (and often tax efficient) means of financing the initial purchase of assets for use in a business, so existing assets may be sold to a finance lessor and then leased back (without ever leaving the lessee’s business premises) in order to refinance existing borrowing or to obtain general business finance. Because the user sells the legal title in the assets to the finance lessor, then, assuming the leaseback is not a long funding lease, the lessor may claim capital allowances, the benefit of which filters through to the lessee in the form of more favourable rental terms, in effect reducing the interest on the business finance provided.

For accounting purposes the leaseback may be classified as either a finance lease or anoperating lease.

Guidance on the tax consequences of sale and leasebacks is at BLM35000 onwards. This also includes an example of the accounting.