A finance lease is a flexible leasing solution designed for UK businesses that want to use a vehicle or asset over a longer period, with the option to purchase it at the end. Unlike Business Contract Hire (BCH), a finance lease gives your business responsibility for the asset's residual value and places the vehicle on your balance sheet.
This guide explains how finance leasing works, who it’s suitable for, and what the key benefits and risks are.
A finance lease is a form of asset finance where the leasing company (the lessor) purchases a vehicle or piece of equipment on your behalf, and you (the lessee) agree to lease it over a set term. While the leasing company retains legal ownership, your business assumes the risks and rewards of ownership, including depreciation.
At the end of the lease, you can usually:
Continue leasing the asset at a nominal “peppercorn” rental
Sell the asset to a third party (sharing in any sale proceeds)
Arrange a purchase at fair market value (if permitted)
Finance leasing is typically suited to:
VAT-registered businesses
Sole traders, partnerships, and limited companies
Organisations seeking a long-term asset without full upfront purchase costs
Businesses that may want the option to own the asset after the agreement ends
It’s particularly popular for:
Commercial vehicles (vans, pickups, HGVs)
Machinery and industrial equipment
IT hardware or office infrastructure
Finance leases are not available for private individuals under personal leasing.
You choose the vehicle or asset
The funder purchases it on your behalf
You lease the asset over an agreed period (typically 2–5 years)
You make fixed monthly payments
Payments typically cover most or all of the asset's cost
May include interest and optional maintenance
At lease end, you can:
Sell the asset and retain a percentage of the sale proceeds
Extend the lease at a minimal cost
Arrange to purchase the asset (subject to funder approval)
There are no mileage restrictions or condition penalties during the lease.
| Feature | Finance Lease | Business Contract Hire (BCH) |
|---|---|---|
| Legal ownership | Leasing company | Leasing company |
| Balance sheet | Yes – asset and liability recorded | No – off balance sheet |
| Mileage restrictions | None | Yes – agreed mileage limit applies |
| Vehicle condition limits | None (but responsible for resale value) | Yes – excess wear and tear charges |
| Option to purchase asset | Yes (in most cases) | No |
| VAT reclaim | Up to 100% (business use only) | Up to 100% (business use only) |
The asset appears on your balance sheet, impacting borrowing capacity
You carry the risk of depreciation – resale value may vary
Early termination may involve settlement fees
You are responsible for maintenance, unless you choose an add-on package
Your business leases a van with a list price of £30,000 on a 4-year finance lease:
Initial rental: £3,000
Monthly rentals: £500 over 48 months
End of lease: sell the van to a third party or continue leasing for a small monthly fee
Frequently Asked Questions
Whether you're expanding your fleet or acquiring essential equipment, finance leasing can offer flexibility, tax efficiency, and long-term value. Speak to our team today and we’ll help you structure the right lease for your business.