Comparison · Capital purchase vs Finance lease

Capital purchase vs finance lease — UK commercial solar 2026

Capital purchase and finance lease are economically similar — both keep tax allowances with you and ownership effectively flows your way. The difference is timing of capital outlay (upfront versus monthly over 8 years) and the cost of that timing flexibility (typically £30-50k of finance charges over 8 years).

Headline answer

Capital purchase wins on lifetime cost by £30-50k over a 7-8 year horizon. Finance lease wins on capital preservation — no upfront outlay, fixed monthly cost integrated into operating budget. Choose based on whether £200k of capital is more valuable in solar (capital purchase) or held against other priorities (finance lease).

Side-by-side

CriterionCapital purchaseFinance lease
Upfront capex£200k£0
Monthly paymentNone£2,777 over 96 months (8-year term, 7.5% APR)
Total payments£200k£266,592 over 8 years
Finance cost£0£66,592 over 8 years (£50k after-tax)
FYA captureYes — year 1Yes — year 1 (lessee captures)
Special-rate poolYes — 6% writing-downYes — 6% writing-down
Asset on balance sheetYes (full ownership)Yes (capitalised under FRS 102 full / IFRS 16)
Ownership at end of termAlways (year 0)Lessee option to acquire at nominal value
25-year cumulative£1.05m£986k
Best forAvailable capital + low alternative use returnCapital preservation priority + cash flow predictability

Which one for which situation

  1. Is your £200k of capital more productive in solar than in your operating business?

    Solar capital purchase delivers ~14-18% lifetime IRR for profitable trading companies (after-tax). If your operating business deploys capital at higher rates (16%+ post-tax), keep capital available for that and finance the solar. If operating business yields are lower, deploy capital in solar.

  2. Do you have working capital seasonal or strategic constraints?

    Lumpy capex (£200k cash outflow) can pressure working capital around year-end or strategic acquisition windows. Finance lease smooths capex into £2,777/month operating expense — easier to absorb in operating budget. Worth £30-50k of finance cost on most operating businesses to preserve flexibility.

  3. Are your covenant ratios tight on senior debt?

    Finance lease (under FRS 102 full / IFRS 16) creates a balance sheet liability similar to debt. Some loan covenants treat lease obligations as debt-equivalent. Capital purchase (paid from cash) doesn't add liabilities. For covenant-constrained operators, capital purchase may be cleaner than adding finance lease obligations.

  4. Does your accounting framework recognise lease liabilities (IFRS 16 / FRS 102 full)?

    Modern accounting frameworks (IFRS 16, FRS 102 full) recognise finance lease obligations as on-balance-sheet liabilities. Older / smaller-entity FRS 102 reporting may keep finance lease obligations off-balance-sheet, although this is becoming rare. Confirm with your accountant whether finance lease creates a recognised liability in your specific reporting framework.

Capital purchase vs Finance lease FAQs

Is the FYA tax saving the same on capital purchase and finance lease?
Yes — both structures position the borrower / lessee as having effective tax ownership of the asset and capture FYA equivalently. The £25k year-1 tax saving on a £200k system at 25% main rate is identical regardless of whether you funded it with cash or finance lease.
Can I structure a partial capital purchase + partial finance lease?
Yes — blended structures are common. Examples: 50% cash + 50% finance lease (preserves half the working capital while saving half the finance cost); 30% cash + 70% finance lease for capital-light businesses. We model blended structures as part of advisory engagements where the constraint pattern fits hybrid solutions.
Why is finance lease typically more expensive than green loan?
Finance lease typically prices ~50-100bp higher than green loan because the lessor takes structural risk on the asset (minor — solar is well-understood collateral) and bears the operational cost of lease administration. The premium is small (£8-15k over 8 years on £200k) but real. Where straight green-loan pricing is available, it usually beats finance lease on rate.
Does finance lease have any advantage over green loan?
Two situations where finance lease beats green loan: (a) speed of decision — finance lease lessors often run faster credit processes than green loan banks; (b) where the lessee's relationship with the lessor is established (existing equipment finance relationship), pricing and underwriting can be friendlier than mainstream bank green loan.
Can I terminate a finance lease early?
Most finance leases include early termination provisions, typically allowing buyout of the remaining lease balance plus a small break fee (1-3% of remaining balance). More flexible than operating lease early termination. Less flexible than typical green loan early repayment (which often has no fee).

Capital purchase (full page)

Pay cash, full ownership, lowest lifetime cost. Mechanics and worked example.

Finance lease (full page)

Functionally similar to a loan with leasing-company structure.

Finance lease vs operating lease

The key comparison if you've narrowed to lease structures.

Need this comparison run on your specific numbers?

We model both structures side-by-side using your postcode, half-hourly demand profile, accounting position, and balance sheet preferences. Five working days from enquiry to indicative comparison.

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