»Ê¹ÚÌåÓýapp

In the example in BLM30040 the finance lessor is taxable (like the bank) on a profit of £20 at the end of the day, but the 25% capital allowances of £250 due to the lessor in Year 1 will create an upfront tax loss of £76. This is on a simplified calculation which assumes:

• the total rentals of £1,200 are split evenly between the years
• the ‘interestâ€� in and out is front-loaded
• the ‘other expensesâ€� are slightly front-loaded
• the asset is purchased at the start of Year 1.

This produces the following computation for the finance lessor for Year 1:

Entry	Amount
Gross rents receivable (£1,200 ÷ 5)	£240
Less interest payable	£58
Gross profit	£182
Less other expenses	£8
Net profit	£174
Less capital allowances	£250
Tax loss	(£76)

»Ê¹ÚÌåÓýapp loss is recovered later and the overall profit of £20 is taxed, as the following tax computations for the finance lessor for the whole five years shows:

Ìý	Year 1	Year 2	Year 3	Year 4	Year 5	Totals
Gross rent	240	240	240	240	240	1,200
Less interest payable	58	45	32	19	6	160
Gross profit	182	195	208	221	234	1,040
Less other expenses	8	4	4	4	0	20
Net profit	174	191	204	217	234	1,020
Less WDA and BA	250	188	141	105	317	1,000
Taxable profit (loss)	(76)	4	64	112	(83)	20

»Ê¹ÚÌåÓýapp capital allowances for Year 5 assume a short-life election has been made and a balancing allowance is due on the worthless asset, thereby relieving the entire net cost over the 5 years.

With longer leases there are likely to be tax losses in the first few years. For example if the lease is over a 25-year term there could be tax losses in the first 6 or 7 years. Tax losses may be generated for longer periods by structuring the payment profile appropriately. »Ê¹ÚÌåÓýapp longer the period of losses, and the greater the delay in recovering the tax, the greater the timing advantage.