A 40% first-year capital allowance for leased vans was one of the benefits for fleet operators announced in the 2025 Budget.
The move comes into effect from 1 January 2026, and brings leased assets into the capital allowances regime for the first time.
Under previous rules, leased vehicles were excluded from first-year allowances, meaning businesses that leased vans missed out on the tax advantages available to companies purchasing outright under the full-expensing regime.
The change is expected to boost investment and accelerate fleet renewal, particularly among SMEs that rely on leasing to manage cashflow and avoid major capital outlays. Leasing companies are also expected to benefit as the market becomes more competitive against outright purchase.
While the 40% deduction falls short of the 100% full-expensing relief available on purchased vans, it marks a significant step towards a more level playing field. Analysts suggest it will support more flexible fleet procurement strategies and could help operators expand or refresh their van fleets more quickly.
"After many months of consultation, we welcome the government’s move to introduce a new 40% first year allowance for lessors for plant and machinery – commercial vehicles”, said Matt Walters, head of consultancy and customer value at fleet management company Ayvens. “Whilst it is not the 100% rate we had hoped for, it makes leasing even more attractive."
Toby Poston, chief executive of the British Vehicle Rental and Leasing Association, also commented: “Introducing leasing into the capital allowances regime at 40% is a positive step in accelerating business investment in commercial vehicles. Leasing is how most UK businesses – including SMEs – access their vehicles.
"It is a result of sustained industry campaigning over several years, spanning engagements with multiple departments, and indeed, multiple Governments”, said Poston.
The allowance applies to “main-rate” expenditure and will not extend to all vehicle types, with cars excluded. Businesses will also need to ensure their leasing arrangements meet the qualifying criteria, as tax treatment can vary depending on the lease structure.
