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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: sale and leaseback: application of sale proceeds

From a commercial point of view the object of a sale and lease-back is to obtain funds for general business purposes or to refinance existing borrowing. If the funds are not used for business purposes, it may be appropriate to look more closely at the deductibility of the rents paid under the lease-back, in particular that part of the rents which in the case of a finance lease is treated as the financing charge or interest. This is considered further at BLM35070.