Finance Lease for UK Businesses

The lender buys the asset and leases it to the business for a primary term - typically covering 75-90% of the asset's useful life. During this period, the business has full operational use of the asset. At the end of the primary term, the business can continue to use the asset on a peppercorn rental (a nominal secondary lease), return the asset, or introduce a third-party buyer (the proceeds of which benefit the business). The lender retains ownership throughout.

Finance lease and hire purchase are the two most common asset finance structures in the UK. The key differences: HP transfers ownership at the end; finance lease does not. HP allows the business to claim capital allowances; under finance lease, the lender claims capital allowances but typically passes some of the tax benefit through in the form of lower rates. Finance lease monthly payments are often slightly lower than HP for equivalent assets because the lender retains residual value. Finance lease is typically preferred for assets with strong secondary markets.

Any business-critical tangible asset: commercial vehicles; plant and machinery; manufacturing equipment; agricultural equipment; medical and dental equipment; catering equipment; technology hardware; renewable energy systems; marine vessels; and construction plant. New and used assets considered.

Lease payments (both primary and secondary) are typically 100% allowable as a business expense against taxable profit, subject to HMRC's rules on finance leases. This is a significant advantage for profitable businesses. Confirm the specific treatment with your accountant - the rules differ slightly for assets with useful lives over 7 years.

Finance lease applications require: a specific asset with an identifiable cost; a trading business with 6+ months of history; directors with no active insolvency proceedings; and the asset to be used wholly or mainly for business purposes.