Lease vs buy solar panels: which costs a UK business less?

Lease vs buy solar panels: the short answer

Lease vs buy solar panels comes down to who owns the system, because in the UK the tax relief follows ownership, not the electricity bill. If your business buys the panels, with cash or a loan, it can claim capital allowances. If it leases them, the lessor owns them and the business gets a deduction for the rentals instead. For a company with taxable profits and some of its Annual Investment Allowance (AIA) free, buying is usually cheaper over the life of the system. Leasing earns its place when you cannot use the allowances, will not hold the premises for long, or put a fixed monthly cost ahead of the lowest lifetime cost.

Many "lease vs buy" guides in search results are written for other countries, where the rules and incentives differ. This one covers a UK business: the three things sold as a solar "lease", who claims the allowances under each, how a lease now appears in company accounts, what VAT does, and a worked comparison you can rerun with your own quote. Nothing here is tax advice; ask your accountant to confirm the position for your company.

What counts as a solar lease

"Solar lease" is used for agreements that work very differently, and comparing the wrong one with buying is the most common mistake. Three are in the market.

Agreement	What you pay for	Who owns the panels	Covered in
Equipment lease	A fixed rental for the use of the panels and kit	The lessor	solar panel leasing for business
Hire purchase	Instalments, with ownership passing to you at the end	You, at the end of the term	hire purchase
Rooftop lease	Nothing: you lease your roof to a funder who installs and owns the system	The funder	renting your roof for solar panels

This page compares the first with buying. A power purchase agreement is a different product again, because you buy the electricity rather than hire the equipment; see the power purchase agreement guide for that. If a quote is labelled "lease" but gives you ownership at the end for a nominal sum, it is closer to hire purchase, and VAT and allowances behave differently, as the sections below explain.

Buying: what the business gets

Buying means the business, not a funder, owns the system, whether it pays cash or borrows to do so. Interest on a loan is claimed as a business cost; it is not part of the capital allowances claim. The relief comes from three layers, set out in full in the capital allowances on solar panels and the solar panel tax relief guides.

The Annual Investment Allowance

HMRC designates all capital expenditure on solar panels as special rate, but special rate expenditure can still qualify for the 100% AIA. The AIA lets you deduct the full value of a qualifying item from your profits before tax, up to £1 million in each accounting period, and it can only be claimed in the period the item was bought. Companies, sole traders and partnerships made up of individuals can claim it. Companies under common control share one allowance, so a group that has spent its AIA on other equipment may have little left for solar. The Annual Investment Allowance guide covers the claim in detail.

Above the AIA, and the 6% pool

A company that has used up its AIA can claim a 50% first-year allowance on special rate plant, with the balance going into the special rate pool in the following accounting period. That pool is written down at 6% a year, and GOV.UK lists solar panels among the items that only get that slower relief. The 50% allowance is for companies, not for sole traders or partnerships. Full expensing is not available for solar panels, which are special rate; see the full expensing and the 50% first-year allowance guide for why.

Selling or scrapping later

If you sell an item after claiming the AIA you may need to pay tax, and disposing of plant that got a first-year allowance can give a balancing charge. That matters if you buy a system and then sell the building, so factor the exit into the comparison rather than treating the allowance as free money.

Leasing: who claims the allowances

Capital allowances generally go to the legal owner of the equipment, whether the lease is a finance lease or an operating lease. For a normal lease the lessor owns the panels, so the lessor claims, and GOV.UK states that you get no plant and machinery allowances on things you lease unless the arrangement is hire purchase or a long funding lease. What the lessee gets is a deduction for the rentals. HMRC treats lease rentals as revenue expenditure whatever the accounting treatment, and a right-of-use lease that is not a long funding lease is taxed like any other trading expense.

Panels fixed to a building

Solar panels on a roof are normally treated as fixtures, and allowances on a fixture cannot go to more than one person at the same time. A lessor and lessee who are not connected can jointly make a section 177 election under the Capital Allowances Act 2001; the lessor is then treated as owner of the fixture and the lessee is not. If the lessor cannot claim, it may price the lease higher, so ask the funder how it intends to claim.

The long funding lease trap

A lease with a term of seven years or less is a short lease for these rules. Longer finance leases can be long funding leases, in which case the allowances move: the lessor loses them and the lessee generally gains them, and rentals above the finance charge are not allowable as a deduction. A 15-year solar lease is exactly the sort of contract that needs this tested before signing, so ask your accountant to read the agreement against HMRC's test.

Lease vs buy solar panels: a worked comparison

The numbers below are an illustrative example, not a quote. They assume a £60,000 system price excluding VAT, a company paying Corporation Tax at 25% (the rate for profits over £250,000), that the energy saving is identical either way, and a lease rental of £7,800 a year for ten years, chosen for the example. Tax relief is counted when the deduction is made; the delay before the tax bill falls is ignored, as is the cost of the cash you spend upfront.

	Buy, AIA claimed	Buy, 6% pool only	Lease, £7,800 a year
Cash out in year 1	£60,000	£60,000	£7,800
Tax deduction in year 1	£60,000	£3,600	£7,800
Tax saved in year 1 (25%)	£15,000	£900	£1,950
Net cost after ten years of relief	£45,000	£53,079	£58,500
Still to come after ten years	Nothing; you own the system	£32,317 left in the pool, worth £8,079 of further relief at 25%; you own the system	Nothing; the lessor owns the system

The pattern holds for any number you put in. With a 100% allowance, buying costs the price less tax at your rate, and a lease costs the total rentals less tax at the same rate. Because both are taxed at one rate, the allowance beats leasing whenever total rentals exceed the purchase price, whatever the rate. In the example the break-even rental is £6,000 a year, which is the £60,000 price spread over the ten years. At the 19% small-profits rate the buyer saves £11,400 instead of £15,000 and the break-even stays at £6,000.

The lease only closes the gap when the business cannot use a full allowance. Buying with the 6% pool alone is slower, and a lease of £7,800 a year still costs £5,421 more over ten years in this example. Add a lease that bundles maintenance or insurance and the picture shifts, so compare like with like: ask what the rental includes, and put a cost against anything you would otherwise have to pay for yourself.

This leaves out things that favour leasing, such as keeping cash for other uses, and things that favour buying, such as export income and an asset on your balance sheet at the end. To run your own figures, use the finance calculator, which also folds in the allowances and VAT, then read the payback and ROI maths for the full return.

How a solar lease appears in your accounts

For years an operating lease stayed off the lessee's balance sheet, which was a reason to lease. That has changed for companies reporting under FRS 102: its Section 20 on leases was rewritten in the Financial Reporting Council's 2024 periodic review, effective from 1 January 2026, and it removes the operating and finance lease distinction for lessees. Most leases now bring a right-of-use asset and a lease liability onto the balance sheet. The lease liability typically exceeds the right-of-use asset during the lease, and interest is typically front-loaded compared with the straight-line expense under the old rules.

The FRC made no equivalent change to FRS 105, which micro-entities use, so a micro-entity still expenses operating lease payments over the lease term. For tax, HMRC says most rentals stay on revenue account despite the new accounting. In practice, if keeping a lease off the balance sheet was your reason for choosing it, check the position with your accountant before signing, and tell your lender how the liability will appear. The accounting detail is on the operating lease page.

VAT: lease and purchase are treated differently

The standard rate of VAT is 20%. A VAT-registered business can reclaim VAT on business purchases through its VAT return, and VAT on plant is reclaimed at the time of purchase, not spread over the life of the plant. It cannot reclaim VAT on goods and services used to make VAT-exempt supplies. Buying therefore asks you to fund the VAT briefly until the return is processed.

A leased item counts as a continuous supply of services. Equipment leasing is not covered by the finance exemption, so VAT is charged on the full value of each rental instalment, and a registered business that makes taxable supplies reclaims it as it falls due. A contract that calls itself hire purchase but ends with an option to buy at or above the expected market value is treated as leasing for VAT. For the wider position, including the zero rate and the Capital Goods Scheme, see VAT on solar panels for business.

When buying wins and when leasing wins

Your situation	Usually points to	Why
Profitable company, AIA free, owns or has a long lease on the building	Buy	The business claims the allowance in the first period and keeps all the energy saving and export income
Company that has used its AIA on other equipment	Buy, or compare	The 50% allowance and the 6% pool are slower, so the lease gap narrows; ask for both quotes
Little or no taxable profit	Lease, PPA or compare	The AIA is a deduction from profits, so a business without profits to deduct it from gets less from it in the year
Sole trader or partnership	Buy if profit allows	The AIA is open to them; the 50% allowance is for companies only
Tenant on a short lease of its own	Check the landlord first	The system sits on a building you may leave; read the guide on whether a tenant can install solar panels first
Cash needed elsewhere in the business	Loan, hire purchase or lease	A business solar loan keeps ownership; a lease does not

If you are weighing every route rather than just these two, the funding routes compared lays them side by side, and the zero upfront solar page covers paying nothing upfront.

Questions to ask before you sign a lease

• Who claims the allowances? A lessor that cannot claim is likely to price in the loss.
• Is it a long funding lease? Over seven years, the allowances may move to you and the rental deduction may be limited.
• What does the rental cover? Maintenance, insurance, inverter replacement and monitoring should be written down, not assumed.
• What happens at the end? Return, extend or buy, and who pays to remove the system and make good the roof.
• What are the break costs? If you might move premises, price the exit before you sign.
• What happens if you sell the building? Check in writing how the lease transfers, or what it costs to end it, before you sign.
• Is the lease registrable? New leases of more than seven years out of registered land are compulsorily registrable at HM Land Registry, which matters most for a rooftop lease.

This site is a publisher, not a lender, installer or adviser. Compare costed quotes from more than one funder, ask for the total of all rentals over the term in writing, and use the quote form to send us your numbers; we reply by email.