finance leases

both the current Uk statement of standard Accounting practice (SSAp 21)and the standard published by the international accounting standards committee (IAS 17)classify a finance lease as being one where substantially all the risks and rewards of ownership of the asset are transferred from the lessor to the lessee.In other words ,the leasing arrangement is a kind of fiction because the apparent owner,the lessor,does not suffer or benefit from changes in the asset is value ,while the user ,the lessee ,does .
However,this fiction is crucially important from a tax point of view as the capital allowances for an asset funded by a finance lease without an option to purchase accrue to the lessor and not the lessee.
In other words the capital allowances accrue to 'the lender' (lessor) and not 'the borrower ' (lessee).where a potential borrower is insufficiently profitable ,or can ameliorate tax liabilities in other ways,acquiring an asset through leasing will be Avery favorable option because the lessor will pass on the value of the tax allowances the lessee will be unable to take full advantage of him\herself via lease rentals that are less than the equivalent interest and capital repayment on a loan .