Commercial Solar Finance Options

How you fund a commercial solar system shapes its return as much as the system itself. The same array can sit on your balance sheet as a capital asset, run off a finance agreement that pays for itself out of the energy it generates, or never touch your capital at all under a third-party model. Each route changes who owns the panels, who keeps the savings, and — crucially for owners and landlords — which tax reliefs apply. This guide compares the six routes a UK commercial property owner or owner-occupier business will realistically consider, with the tax position for each as it stands in June 2026. None of this is tax advice; confirm your own position with your accountant before you commit.

Start with the question funding actually answers

Before comparing products, be clear what you are optimising for. Three things pull against each other: keeping the capital free, keeping the savings, and keeping the tax relief. Cash purchase wins on savings and relief but consumes capital. Third-party models free the capital and remove the relief along with it. Debt and lease products sit in between. Your answer depends on whether you occupy the building (you keep 100% of the self-consumption value), let it (the split incentive decides who benefits), or hold a portfolio where balance-sheet treatment across multiple assets matters more than any single roof.

A typical commercial system costs roughly £700–1,100 per kWp installed, falling with scale: a 100kWp array runs £82,000–110,000, a 250kWp system £150,000–240,000, and 500kWp £350,000–500,000. Payback usually lands at four to eight years (three to five for high day-load sites), driven mostly by self-consumption rather than export. Those numbers frame every funding decision below — see the full breakdown on our cost page.

Cash purchase

Buying outright is the cleanest route and almost always the cheapest over the asset’s 25–30 year life, because you pay no financing margin. You own the panels from day one, keep every pound of bill saving, and capture any uplift to the building’s value and EPC rating.

The tax treatment is the strongest part of the case. Solar is a special-rate asset for capital allowances. It does not qualify for full expensing — that gives only a 50% first-year allowance on special-rate plant, and only to companies. Instead, almost all owners claim under the Annual Investment Allowance (AIA), which gives 100% relief in year one on up to £1m of qualifying spend (a permanent limit). For a £200,000 system, a company paying 25% corporation tax sees a £50,000 reduction in its tax bill in the year of installation. There is no VAT to reclaim because commercial solar installation has been zero-rated since April 2022. Business rates on the solar plant are exempt to 2035.

One important carve-out for landlords: the AIA and full expensing are not available on plant bought specifically to lease to a third party. If you install solar to generate power you then sell to your tenant, the kit can fall into the leasing exclusion. In that case you typically rely on writing-down allowances (the 6% special-rate pool) rather than 100% up front. Where you own and occupy, or supply the common parts, this is rarely an issue. The structure matters — read capital allowances and funding for owners before deciding how to hold the asset.

The downside is obvious: cash purchase ties up capital you could deploy elsewhere. If your return on capital in the business beats the solar payback, financing the panels and keeping the cash working may be the better commercial call.

Asset finance and hire purchase

Asset finance — usually structured as hire purchase (HP) — lets you spread the cost over typically five to ten years while taking ownership of the equipment. You pay a deposit, then fixed monthly instalments, and own the system outright at the end. Because solar generates savings from day one, well-structured HP is often cash-flow positive from the first month: the energy saved exceeds the repayment.

The tax position is favourable. Under HP you are treated as the owner for capital allowances purposes, so the same AIA / special-rate treatment applies as a cash purchase — you can claim 100% AIA on the full asset cost in year one even though you have only paid a deposit, provided the agreement brings the asset into use. You also deduct the interest element of payments as a business expense. This combination — own the asset, claim the full allowance, spread the cash — is why HP is the most popular finance route for owner-occupiers. Specialist solar asset finance lenders understand the technology and structure terms against the generation profile rather than treating it as generic kit.

Operating lease

An operating lease (or finance lease) is a rental arrangement: the lender owns the equipment and you pay to use it. Payments are an operating cost, fully deductible against profit, which keeps the asset off your balance sheet and preserves your borrowing capacity for other purposes.

The trade-off is the tax relief. Because the lessor owns the equipment, the lessor — not you — claims the capital allowances, and prices that benefit into the rental. You give up the 100% AIA in exchange for simplicity and an off-balance-sheet position. For businesses that cannot use the allowances anyway (loss-making, or already at the AIA cap from other investment), a lease can be more efficient than HP. For a profitable owner-occupier who can use the full AIA, HP or cash usually beats it. Note that the leasing exclusion that blocks full expensing also bites here: solar that is leased out cannot attract the enhanced first-year reliefs.

Commercial loan

A conventional commercial loan, green loan, or a draw against an existing facility funds the purchase like any other capital expenditure. You buy the system with borrowed money, own it outright, and repay the loan separately from the asset.

Because you own the equipment, the full AIA / special-rate capital allowance treatment applies exactly as with cash — the loan is just how you funded it. You also deduct loan interest as a business expense. Green loans sometimes carry a margin discount tied to verified carbon or efficiency outcomes. The decision between a loan and HP usually comes down to rate, security, and whether you want the debt secured against the property or only against the equipment. A loan secured on the building gives the lender broader recourse; HP is ring-fenced to the asset.

Power purchase agreement (PPA)

A PPA removes the capital cost entirely. A funder installs, owns, and maintains the system on your roof, and you buy the electricity it generates at an agreed unit rate — typically below your grid tariff — over a long term, often 15–25 years. You pay nothing up front and nothing for maintenance; the funder takes the asset and the operational risk.

Because you never own the equipment, there are no capital allowances for you to claim — the funder claims them. Your benefit is a lower, more predictable electricity price and a hedge against grid volatility, not a tax asset. PPAs suit owners and businesses that want the carbon and cost benefit without the capex or the operational responsibility, and they neatly address the landlord–tenant split incentive because the occupier can contract directly for the power. The cost is total return: a PPA captures most of the savings for the funder, so the headline discount is smaller than the saving you would keep under ownership. Our sibling resource on solar power purchase agreements covers structures, rates, and contract terms in depth.

Third-party roof lease (sell the roof)

In a roof lease, you let your roof space to a developer who installs and owns a system and either sells the power back to the building or exports it. You receive rent for the roof, take zero capital risk, and have no tax allowances to claim because you own nothing. It is the most hands-off route and can monetise roof space you would not otherwise use, but it gives away the largest share of the value and commits the roof for the lease term — which complicates re-roofing, sale, or redevelopment. Weigh it carefully against a PPA and an occupier licence in roof lease vs PPA vs licence.

Comparison at a glance

*Subject to the leasing exclusion: AIA and full expensing are unavailable on solar bought to lease out to a third party — landlords in that position fall back on the 6% writing-down allowance. Confirm with your accountant.

How to choose

If you occupy the building, pay tax, and can spare the capital, cash purchase delivers the best lifetime return and the full 100% AIA. If you want the ownership and the allowance but would rather keep capital working, hire purchase gives you both and usually pays for itself month one. If you cannot use the allowances, an operating lease or PPA may be more efficient. If you want zero involvement and zero risk, a PPA or roof lease hands the asset to a third party in exchange for a smaller, simpler benefit. For landlords, the funding route and the split incentive decision are inseparable — settle who captures the energy value before you settle who pays for the panels. When you are ready to model the numbers against your own building, request a quote or review the wider funding and grants position first.

Frequently asked questions

Can I claim the 100% Annual Investment Allowance if I finance the system on hire purchase?

Yes, in most cases. Under hire purchase you are treated as the owner of the asset for capital allowances, so you can claim the AIA on the full equipment cost in the year it is brought into use, even though you have paid only a deposit. The interest element of the payments is separately deductible as a business expense. The exception is solar bought specifically to lease out to a third party, which falls under the leasing exclusion and relies on the 6% writing-down allowance instead. Confirm your position with your accountant.

Why doesn’t commercial solar qualify for full expensing?

Full expensing applies to main-rate plant and machinery. Solar is classified as a special-rate asset, which qualifies only for the 50% first-year allowance under full expensing — and even that is limited to companies. For almost all owners the Annual Investment Allowance is the better route, giving 100% relief in year one on up to £1m of qualifying spend with no company-only restriction. Both reliefs are blocked where the asset is bought to lease to a third party.

Does a PPA or roof lease give me any tax relief?

No. Under a power purchase agreement or a third-party roof lease you do not own the equipment, so there are no capital allowances for you to claim — the funder or developer claims them. Your benefit is operational: a lower, fixed electricity price under a PPA, or roof rental income under a lease. You give up the tax asset in exchange for removing the capital cost and the maintenance responsibility entirely.