Finance Lease Rates 2026 — Updated October 2026
- Finance lease implicit rate range — by asset class (October 2026)
- 5.5%–9.5%Finance lease implicit rate range — by asset class (October 2026)
- Full lease payments deductible from taxable profit — unlike HP depreciation schedule
- Revenue deductibleFull lease payments deductible from taxable profit — unlike HP depreciation schedule
- Most finance leases now on-balance-sheet under IFRS 16 — check with accountant
- IFRS 16Most finance leases now on-balance-sheet under IFRS 16 — check with accountant
- Finance lease: no asset ownership at end of term — key difference from HP
- No ownershipFinance lease: no asset ownership at end of term — key difference from HP
Finance lease rates in October 2026 are typically quoted as a monthly rental figure rather than an APR, but the underlying implicit rate ranges from 5.5%–9.5% for most business assets — broadly similar to equivalent HP rates. The key distinction is structural: under a finance lease, the lessee (business) does not own the asset at the end of the term (options include secondary rental, sell the asset and share proceeds, or extend the lease). Finance leases are fully off-balance-sheet for some accounting frameworks, and lease payments are treated as revenue expenditure — reducing profit and therefore corporation tax in the period they are paid.
Finance Lease Rates by Asset Class — October 2026
Swipe the table sideways to see every column.
| Asset class | Implicit rate | Monthly vs HP comparison | Tax treatment | Best for |
|---|---|---|---|---|
| Agricultural machinery | 5.0%–7.5% | Similar to HP monthly | Full lease payment deductible | Farmers in high-tax years seeking revenue deduction |
| Construction plant | 5.5%–7.5% | Similar to HP monthly | Full lease payment deductible | Contractors who replace equipment frequently |
| Commercial vehicles | 5.5%–7.5% | Slightly lower monthly (no AIA to compare) | Full lease payment deductible | Fleet operators who prefer to hand back and upgrade |
| Technology / IT | 7.0%–9.5% | Similar or slightly lower than HP monthly | Full lease payment deductible | Technology with rapid obsolescence — prefer to hand back |
| Medical equipment | 5.5%–7.5% | Similar to HP | Full lease payment deductible | Practices preferring predictable costs and regular equipment refresh |
| Office fit-out | 7.5%–9.5% | Slightly lower monthly | Full lease payment deductible | Businesses with shorter lease terms matching the fitout life |
What determines your rate
Finance lease vs operating lease — the distinction
Finance lease: the lessee bears the risks and rewards of ownership during the lease term. The lease typically runs for most of the asset's economic life. Under IFRS 16, finance leases are recognised on the balance sheet as a right-of-use asset and lease liability. Operating lease: shorter term, lessor retains residual value risk, asset handed back at end. Under IFRS 16, even operating leases of 12+ months are now on-balance-sheet for IFRS reporters. SMEs reporting under FRS 102 have different treatment — check with your accountant.
Revenue deductibility vs capital allowances
Finance lease payments are typically deductible as a business expense (revenue deduction) in the year paid. HP payments are not fully deductible — only the depreciation (for accounting) and the capital allowances (for tax) are deductible, with interest as revenue. For a business with large taxable profits, claiming AIA on HP in year 1 (100% of the asset cost) provides a larger upfront tax saving than the annual lease payment deduction. For businesses with lower or variable profits, annual lease payment deductibility is more predictable. DBF models the tax comparison before recommending.
End of lease options — what happens at term end
Finance lease end-of-term options typically include: (1) Secondary rental — continue renting the asset at a peppercorn or reduced rent; (2) Sell the asset on behalf of the lessee — the lessee receives the majority of the sale proceeds minus a handling fee; (3) Return the asset to the lessor. The absence of an ownership option (unlike HP) is the key structural difference. For businesses that regularly replace equipment, this is beneficial — no need to manage the disposal of the old asset.
When to choose finance lease over HP
Finance lease is typically better when: (1) The business has used its Annual Investment Allowance already and cannot claim further capital allowances; (2) The business prefers to keep equipment off-balance-sheet (where accounting standards allow); (3) The business replaces equipment frequently and values the clean handback at term end; (4) The asset has high obsolescence risk (technology) and ownership would leave a depreciating liability. HP is typically better when: the business will use the asset for its full economic life and wants ownership, or when AIA is available and maximises the upfront tax relief.
Worked cost example
- AIA in year 1
- £85,000 × 25% = £21,250 tax saving
Dental practice purchasing a CBCT scanner: £85,000. Professional lease over 5 years.
Finance lease (5yr): implicit rate 6.5%. Monthly: £1,655.
Lease payments deductible. At 25% CT rate: £3,979/year tax saving = £19,894 over term.
Net 5yr lease cost: £99,300 - £19,894 = £79,406. Asset handed back at end.
HP (5yr): 6.2% APR. Monthly: £1,651. Total cost: £99,060.
Net 5yr HP cost: £99,060 - £21,250 = £77,810. Asset owned at end.
HP net cost: £77,810 — asset owned. Finance lease net cost: £79,406 — asset returned.
HP wins by £1,596 over term, and the practice owns the scanner.
But: scanner is likely obsolete in 5 years. Finance lease allows upgrade to new generation without disposal.
Final DBF recommendation: finance lease — technology obsolescence and clean upgrade path outweigh £1,596 HP saving.
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Rate context and outlook
Bank Rate is 3.75% after the 17 September hold. Variable business facilities (revolving credit, invoice finance) move only with Bank Rate.
Fixed-rate hire purchase and leases are funded against swap rates, so some funders may nudge fixed pricing up after the September swap move. Quotes are typically held for 30 days.
Reviewed by David Doulton, Director, Doulton Bridging Finance — over 20 years in property finance. Last reviewed 1 October 2026. Doulton Money Ltd t/a Doulton Bridging Finance, FCA No. 814533.
Frequently asked questions
What is a finance lease?
A finance lease is a medium to long-term rental of an asset where the lessee (business) effectively bears the risks and rewards of ownership during the lease term, without actually owning the asset. Lease payments are typically fully revenue-deductible. At the end of the term, the business can continue renting at a lower rate, sell the asset and receive most of the proceeds, or return it to the lessor.
What are finance lease rates in October 2026?
Finance lease implicit rates range from 5.0%–7.5% for agricultural and construction plant, to 7.5%–9.5% for technology and office fit-out. Monthly payments are broadly similar to equivalent HP payments for the same asset. The key difference is the accounting and tax treatment, and the absence of ownership at term end.
Is finance lease or HP better for my business?
Finance lease is typically better for: high-AIA-utilisation businesses, frequent equipment replacers, businesses preferring revenue deductibility, and technology with high obsolescence risk. HP is typically better for: businesses retaining assets for their full life, those wanting to claim AIA upfront, and assets with strong residual value. DBF models both options for your specific tax position.
Is a finance lease on or off the balance sheet?
Under IFRS 16 (mandatory for listed companies and some larger businesses): most finance leases and operating leases of 12+ months are on-balance-sheet as a right-of-use asset. Under FRS 102 (common for SMEs): treatment depends on whether the lease is classified as a finance or operating lease — check with your accountant. DBF advises on the accounting treatment implications but always recommends independent accountant advice.
Can I get a finance lease as a new business?
Finance leases for new businesses follow similar criteria to HP — restricted lender panel, possible director guarantee, larger deposit. Some specialist new-business asset finance lenders consider finance leases for businesses under 2 years old, particularly where the director has relevant industry experience. DBF advises on the best route for new business asset finance.
Can a new business get finance?
Yes, though many funders want 1–2 years of trading or a larger deposit; directors' personal credit matters more for young businesses.
Is VAT charged on hire purchase?
On HP, VAT is paid upfront with the deposit and can usually be reclaimed; on leases it is added to each rental.
What is a balloon payment?
A larger final payment that lowers the monthly cost; you pay it, refinance it or return the asset, depending on the product.
Do I need to put down a deposit?
Usually 0%–20%, depending on the asset, its age and your trading history.
Where this applies
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Independent whole-of-market advice · FCA No. 814533