Finance Lease: Solar Asset Finance

A finance lease is a way to fund commercial solar where the lender retains legal ownership of the system while your business has full use of it for the lease term and takes all the energy savings. It sits between hire purchase and an operating lease: the asset is on your balance sheet and the risks and rewards of ownership largely sit with you, but the tax treatment is different from hire purchase in a way that suits some businesses very well.

How the tax works on a finance lease

This is the key distinction. Under a finance lease the lessor is the legal owner, so the lessor normally claims the capital allowances — and reflects that benefit by pricing your rentals lower than they would otherwise be. You, the lessee, get tax relief instead through your profit and loss account: the rental payments are an allowable deduction against taxable profit.

There is an exception worth knowing. Where the agreement is a long funding lease under the Capital Allowances Act 2001, the rules flip and the lessee can claim the allowances instead of the lessor. Whether your lease falls into that category depends on its length and terms relative to the asset’s expected life. We work through this with your accountant so the relief lands in the right place — it’s exactly the kind of detail most installer finance desks gloss over. Our capital allowances guide sets out the full framework.

Spreading the VAT

One practical advantage of a finance lease over hire purchase is VAT. On hire purchase the VAT on the equipment is payable up front (then reclaimed); on a finance lease, VAT is charged on each rental across the term. For a larger system, deferring the VAT outflow rather than funding it on day one can ease cash flow considerably.

Balance-sheet treatment and the 2026 change

A finance lease has always been an on-balance-sheet arrangement for the lessee: you recognise the asset and a corresponding lease liability, depreciate the asset, and unwind the interest through the P&L. From accounting periods beginning on or after 1 January 2026, the revised FRS 102 brings almost all leases (not just finance leases) onto the balance sheet in a similar, IFRS 16-style way — so the distinction between “finance” and “operating” leases largely disappears for lessees. If your covenants are sensitive to gearing, talk to your accountant about the timing; we flag it in every proposal because most competitors haven’t updated for it.

When a finance lease makes sense

A finance lease tends to suit a business that:

• wants the lender to carry the capital allowances (for example because the rentals priced-in benefit is more useful than claiming the relief directly);
• would rather spread the VAT across the term than fund it up front;
• is comfortable not holding legal title during the term; and
• still wants to keep 100% of the energy savings the system delivers.

If owning the asset and claiming the allowances yourself is the priority, hire purchase is usually the better fit. If you want the very lowest monthly cost and don’t need ownership at all, an operating lease may be cheaper still. We model all of them, and compare the lot against paying cash and against a PPA in our asset finance vs PPA guide.

At the end of the term

When the primary term ends you typically have three options: continue using the system on a nominal “peppercorn” secondary rental, sell the asset to a third party as the lessor’s agent (often retaining the bulk of the sale proceeds), or upgrade to a newer or larger system. We set these options out in the proposal so there are no surprises years down the line.

Get a finance-lease quote

Send us your bills and site details and we’ll size the system, structure a finance lease across our lender panel, confirm the allowance position with your accountant, and present it alongside the hire-purchase, cash and PPA alternatives. Request a finance quote — indicative decision in 24–72 hours.