Hire Purchase

Lease Purchase

Lease Finance

Leasing is a contract between the leasing company, the "lessor", and the customer, the "lessee";

• The leasing company buys and owns the asset that the lessee requires.
• The customer hires the asset from the leasing company and pays rental over a pre-determined period for the use of the asset.

The leasing company can sometimes claim capital allowances on the assets. These benefits are usually passed onto the lessee in the form of reduced repayments.

There are two types of leases: Finance Leases and Operating Leases.

Finance Leases:

Under a finance lease the rental covers virtually all of the costs of the asset, therefore the value of the rental is equal to or greater than 90% of the cost of the asset. The leasing company claims written down allowances, whilst the customer can claim both tax relief and VAT on rentals paid.

Operating Leases:

The lease will not run for the full life of the asset and the lessee will not be liable for its full value The lessor or the original manufacturer or supplier will assume the residual risk. This type of lease will normally only be used when the asset has a probable resale value; for instance aircraft or vehicles.

The most common form of operating lease is known as contract hire. Essentially this gains the customer the use of the asset together with added services. A very common example of an asset on contract hire would be a fleet of vehicles.

Lease

Lease

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