Under a finance lease, the finance company owns the asset throughout and the agreement covers a set period – considered to be the full economic life of the asset. Often, there is an option to continue leasing at a reduced, or ‘peppercorn’ rate, at the end of the contracted period.
As you are not the owner of the asset, you cannot sell the asset during the rental period.
The finance company can claim the writing-down allowances and pass this benefit to you in reduced rentals.
Key Features and Benefits
Preserves cashflow – offers the obvious cashflow benefits of paying in instalments.
Initial deposits – can be as low as one repayment/rental down with the VAT spread over the term of the agreement.
Flexible – repayments/rentals can be structured according to your anticipated cashflow.
Tax efficient – the repayments/rentals can normally be offset against taxable profits.
Cost-effective – the Funder, as owner of the asset, claims the writing down allowances and passes them on to you in the form of lower repayments/rentals.