Sale and leaseback: releasing cash from business assets

What sale and leaseback is

Sale and leaseback is an asset finance arrangement in which a business sells an asset it already owns to a funder and then leases it back. The asset can be equipment, vehicles or property. The sale releases cash that was tied up in the asset, while the leaseback lets the business keep use of it. The business becomes a lessee and the funder becomes the owner and lessor. Because ownership passes to the funder, the arrangement differs from simply borrowing against an asset while retaining title. It is used where a business wants liquidity from assets that remain important to its operations. The leaseback terms set out rent, duration, maintenance responsibilities and end-of-term options. The structure can apply to a single asset or a portfolio. The commercial effect is that the business converts an owned fixed asset into cash and a payment obligation. The legal effect depends on the documents, including the sale contract, the lease and any related security. The arrangement sits within asset finance, alongside hire purchase and leasing. It can release value from assets that are already in use.

In the UK, sale and leaseback forms part of an asset finance market in which Finance & Leasing Association members expected record 2025 new business of almost £41 billion. FLA data also indicate that asset finance funds about a third of UK investment in machinery, equipment and vehicles. These figures provide market context rather than terms for any individual transaction. A key distinction is between sale and leaseback and refinance. In a refinance, the business typically borrows against an asset and may keep ownership, subject to security. In sale and leaseback, ownership is sold to the funder and the business leases the asset back. The funder may be an asset finance provider, a bank or another specialist financier. Some are FLA members. The offer will depend on the asset type, the funder's appetite and the business's circumstances. Independent legal and tax advice is relevant before completion. The documents define the sale price, the lease obligations and the ownership position. A side-by-side review can help the business compare net cash, obligations and risk. The market context does not set the terms of a particular case.

How the process works

The process usually begins with the business identifying an owned asset that could be sold and leased back. The funder then assesses the asset and the business. Valuation may consider open-market value, forced-sale value, age, condition, service history and any existing finance secured on the asset. The funder also reviews financial information, trading history and the proposed lease term. If the case proceeds, the funder issues an offer setting out the asset, the purchase price, the lease structure, rentals, term, end-of-term options and conditions. The business compares the offer with its cash needs and with other funding options. Legal and tax advice is relevant before completion. On acceptance, sale documents transfer ownership of the asset to the funder. The business receives the sale proceeds, subject to any settlement of existing finance and transaction costs. The leaseback documents are signed at the same time or shortly afterwards. The business remains in occupation or use of the asset under the lease. The funder's security position and the business's obligations are set by the contract. Completion follows once conditions are met. The sale and leaseback are linked.

After completion, the business makes lease rentals or hire-purchase payments as set out in the agreement. The payments reflect the funder's purchase price, the term, the funder's funding cost and risk, and any residual value assumptions. The business continues to use the asset and usually remains responsible for insurance, maintenance and compliance with the lease. The funder owns the asset during the term. At the end of the term, the contract may offer options such as return of the asset, continued rental, sale or a nominal purchase. The availability and cost of those options depend on the documentation and tax treatment. Early settlement may be possible only on terms set out in the contract, and an early settlement figure may include outstanding rentals and charges. Default provisions can allow the funder to terminate the lease, recover the asset or claim sums due. The business needs to understand the sale, lease, security and any guarantee documents as a package. Record keeping matters for tax and accounting. The sequence is valuation, offer, sale, leaseback, repayments and end-of-term action. Each stage has documents and conditions.

How it compares with other ways to release cash

Sale and leaseback is one of several ways a business can release cash from its balance sheet. Asset refinance involves borrowing against an owned asset, often while the business retains ownership subject to security. Sale and leaseback involves a sale of ownership to a funder followed by a leaseback. The comparison table sets out the main differences across ownership, use of the asset, repayment profile, security, end-of-term position and tax and accounting treatment. For a business that needs to keep using an asset, sale and leaseback and asset refinance can both be relevant. The choice depends on the asset, the business's financial position, the desired term and the treatment of ownership. Sale and leaseback may release value tied up in equipment, vehicles or property. Asset refinance may be used where the business wants to borrow against an asset without a sale. Neither structure is automatically the same, and each has a different legal and accounting effect. The table supports a side-by-side review of cash release, contractual obligations and residual positions. It records features rather than outcomes. A business can use it with advice.

Asset-based lending, or ABL, typically uses a borrowing base linked to receivables, inventory or other assets. It can provide a revolving facility, while sale and leaseback relates to specific owned assets and creates a lease obligation. A term loan provides cash against the general credit of the business or specific security; it does not ordinarily involve selling an asset and leasing it back. Invoice finance releases cash against unpaid invoices and is linked to the sales ledger. The comparison table places these options alongside sale and leaseback so that differences in security, ownership, dilution and reporting can be seen. The table does not prescribe an outcome. It records the features of each route. A business may use more than one form of finance. Sale and leaseback can sit alongside ABL, a loan or invoice finance if the documents permit. The mix depends on the assets available, the cash requirement, the term and the covenants. Each route has different effects on ownership, security and reporting. Independent advice is relevant because the legal, tax and accounting effects differ. The table can be used to compare them.

Valuation and how much can be released

Valuation is central to sale and leaseback because the sale price determines the cash released and the rentals under the leaseback. A funder may consider open-market value and forced-sale value. Open-market value assumes a willing buyer and a reasonable marketing period. Forced-sale value assumes a shorter period or constrained circumstances and is usually lower. The difference matters because the funder owns the asset and bears resale risk if the lease ends early or the business defaults. The asset's age, condition, service history, mileage, specification and market demand affect the valuation. For property, location, lease terms, planning status and condition are relevant. For equipment and vehicles, model, maintenance records and obsolescence are relevant. The funder may instruct an independent valuer or use its own assessment. The business can provide records and access for inspection. A valuation is not the same as a guaranteed sale price. The funder's offer will reflect its valuation, its appetite for the asset and the proposed lease terms. The business can review the basis of valuation and any assumptions. It can also check the inspection and appeal process.

The cash released is not simply the valuation. Existing finance secured on the asset may need to be settled from the sale proceeds. Transaction costs, legal fees and any early repayment charges may also reduce the net amount. The funder may set the purchase price by reference to a valuation basis and may adjust for the lease term and residual risk. The business can compare the net cash released with the rentals payable over the term and with the end-of-term obligations. No single percentage applies to all assets or businesses. The amount that can be released depends on the valuation, the asset's acceptability to the funder, the business's financial position and the lease structure. A higher purchase price may lead to higher rentals or different residual assumptions. A lower valuation may reduce cash but improve the funder's risk position. The business can review the offer on a net basis. The comparison table can record the valuation basis, settlement of existing finance and net proceeds. It can also record rentals, term and end-of-term terms. The net position is the relevant measure.

Tax: capital allowances and VAT

Tax treatment is a material part of sale and leaseback. For plant and machinery, capital allowances may be affected by the sale. A disposal can give rise to a balancing charge or balancing allowance, depending on the tax written-down value and the sale proceeds. The position is not limited to the accounting result. Capital allowances anti-avoidance rules can restrict relief on sale and leaseback between connected parties. The rules are relevant where the seller and lessee are connected with the buyer and lessor. The business needs to establish the tax written-down value, the disposal value and the effect on its capital allowance pool. The lease rentals may also have a tax treatment that differs from the sale proceeds. For property, the position depends on the asset and the tax rules for the relevant period. The contract can allocate responsibility for tax and set out gross-up or indemnity provisions where relevant. The business can obtain specialist tax advice before completion. The AIA guide is relevant for the interaction with annual investment allowance. The sale and the lease are separate events for tax.

VAT can arise on both the sale of the asset and the lease rentals. The sale of a business asset may be taxable, exempt or outside the scope depending on the asset and the circumstances. The leaseback rentals may also be taxable or exempt. VAT recovery depends on the business's taxable activities and the nature of the asset. The contract can set out whether amounts are inclusive or exclusive of VAT and how VAT is accounted for. A transfer of a going concern may have different VAT treatment, but that depends on the facts. The business needs to consider VAT grouping, partial exemption and option to tax rules where relevant. Stamp duty or land transaction tax may be relevant for property. The AIA guide can be used alongside specialist advice to review the capital allowance position. The tax analysis can affect the net cash released and the rentals. The business can model the sale, leaseback and tax cash flows before signing. The documents can allocate tax risk and require co-operation on elections and returns. VAT timing can affect cash flow.

Accounting under FRS 102

The revised FRS 102 applies to accounting periods beginning on or after 1 January 2026. It addresses lease accounting, including sale and leaseback transactions, and introduces a right-of-use asset model for lessees. Under that model, the lessee recognises a right-of-use asset and a lease liability. The sale element is accounted for separately from the leaseback. The gain or loss on the sale depends on the rights retained and the fair value of the asset. The accounting reflects the substance of the transaction. The business can review the transition requirements and comparatives. The date is fixed by the standard, but the effect depends on the transaction. The accounts can show the asset and liability differently from the previous treatment. The business can take accounting advice. The right-of-use asset represents the lessee's right to use the asset over the lease term. The lease liability represents the present value of lease payments. The sale proceeds and the retained rights affect the measurement. Disclosures set out the carrying amounts and the lease terms. The business can prepare the comparatives on the same basis. The standard applies by date.

Listed groups that apply IFRS 16 account for leases under a right-of-use model. Sale and leaseback transactions are within that framework, with the sale and the leaseback assessed together. A listed group can therefore show a right-of-use asset and a lease liability for the leased asset. The revised FRS 102 creates a similar right-of-use focus for entities within its scope from periods beginning 1 January 2026. The two frameworks are not identical in every disclosure or transition requirement. The business can map the sale and leaseback terms to the accounting entries. It can identify the right-of-use asset, the lease liability and the gain or loss on the sale. It can also review the effect on covenants and reported figures. Tax and accounting treatments can differ, so the business can model both. The transition date is set by the standard, while the transaction date and terms set the measurement. The business can prepare disclosures on the right-of-use asset and the lease liability. Accounting advice is relevant before the transaction is signed. The figures can affect balance sheet ratios. The treatment follows the terms.

Risks and contract points

Sale and leaseback transfers ownership of the asset to the funder. The business keeps use only under the lease and subject to its terms. Loss of ownership can matter if the business later wants to sell, borrow against or modify the asset. The funder may impose restrictions on alterations, relocation or subletting. Default consequences can include termination of the lease, recovery of the asset and claims for sums due. The business may lose use of an asset that is important to operations. The contract can include remedies, grace periods and dispute processes, but the funder's position as owner is central. Early settlement may be available only on terms set out in the agreement and may include outstanding rentals or charges. End-of-term terms can require return, continued rental, sale or purchase. The business needs to understand the residual position and any condition standards for return. Personal guarantees or corporate guarantees may be requested. Those create additional exposure if the business defaults. Insurance, maintenance and compliance obligations can also carry cost. The obligations continue while the lease runs. The contract sets the scope.

The contract package usually includes a sale agreement, a lease or hire-purchase agreement, security documents and any guarantee. Key points include the asset description, purchase price, rentals, term, payment dates, default events, remedies, maintenance standards, insurance, permitted use, alterations, assignment and end-of-term options. The business can check whether early settlement is permitted and how the figure is calculated. It can review whether the funder can transfer the lease or sell the asset. It can check tax indemnities, VAT treatment and responsibility for registration or filing. Personal guarantees can be limited by amount, duration or scope, but the terms depend on negotiation. The business can compare the net cash released with the total obligations and the loss of flexibility. The comparison table can record the main contract terms. Independent legal, tax and accounting advice is relevant before signing. The documents define the risk allocation, and the business bears the obligations it accepts. The business can seek clarity on default, early settlement and end-of-term positions. It can also review insurance, maintenance and permitted use. The sale and leaseback documents operate together. They set the obligations.

Frequently asked questions

What is sale and leaseback?

A business sells an asset it owns to a funder and leases it back, releasing cash while keeping use of the asset.

What assets can be used?

Commonly plant, machinery, vehicles and commercial property, subject to valuation and resale value.

Does sale and leaseback affect capital allowances?

It can; anti-avoidance rules restrict allowances on some sale and leaseback transactions, especially between connected parties.

How big is the UK asset finance market?

FLA members expected record 2025 new business of almost £41 billion.

Is sale and leaseback the same as asset refinance?

They are similar; refinance often uses hire purchase so ownership returns after the final payment, while a leaseback lease may not transfer ownership.