Fleets Hope New First-Year Allowances Will Reduce Lease Costs

Fleet operators across the UK are welcoming a major tax reform that could significantly reduce leasing costs for commercial vehicles. The Autumn Budget 2025 introduced a 40% first-year capital allowance for leased vans and light commercial vehicles, effective from 1 January 2026. This marks the first time leased assets have qualified for such relief, closing a long-standing gap in the capital allowances regime.

Previously, only outright purchases benefited from full expensing, leaving leased vehicles subject to slower writing-down allowances. The new measure allows businesses to claim an upfront deduction, improving cash flow and enabling more flexible fleet procurement strategies. HMRC has confirmed that the allowance applies to “main rate” plant and machinery—including leased vans—but excludes cars and second-hand assets.

Industry leaders say the change could translate into lower lease rates. Paul Hollick, Chair of the Association of Fleet Professionals (AFP), noted that leasing companies are already reviewing their pricing models. “I would expect to see a slight reduction in costs on vans being delivered next year,” he said, though he cautioned that outcomes will vary depending on how each provider funds its vehicles.

Chris Connors, Head of Fleet and Travel at ISS, added that the allowance is “a step in the right direction,” especially as fleets face rising vehicle costs and residual value pressures. “Anything we can do, particularly around electric vans, to make them more affordable is welcomed,” he said.

However, the British Vehicle Rental and Leasing Association (BVRLA) has warned that rental rates may still rise to offset falling used EV values. A recent survey found that 64% of companies expect used electric vehicle prices to decline, prompting leasing firms to adjust new-vehicle rates accordingly.

While the 40% allowance falls short of the 100% full expensing available for purchased vans, it represents a significant shift.

Toby Poston, Chief Executive of the BVRLA, described it as “a positive step in accelerating business investment in commercial vehicles,” though he urged the Treasury to extend full expensing to leased cars and vans.