Every book, radio show or podcast for people wanting to become/stay wealthy would advise against leasing a car. I agree a car itself is an expensive toy and lease even adds to this equation, but...

If I have a choice of buying a car, for which I would need to withdrawal my limited company funds and hitting higher tax bracket of 32.5%, or, leasing it via personal car hire, wouldn't it make more sense to lease it?

Let's say the car costs £25k - it means I would have to pay £8125 in tax which totals to £33,125.00 or - pay an initial payment of £1,800.00 + let's say 24 * £300 which totals to £9,000.00

I am assuming that for the yearly lease cost, I would have to pay the higher bracket tax because the funds would be withdrawn from my LTD company account which is £2,925.00 thus the total cost of the lease is £11,925.00.

Now, if it was a purchase of the car for cash, in 2 years the car would lose value, I think it's safe to say it would lose £5,000.00 over 2 year period. So I could sell it for £20,000.00.

From the above calculations, it seems that if I was planning to drive the car for two years, it's cheaper to lease it than buy it for cash under these circumstances.


Note: Higher tax bracket on dividends over £32,000.00 a year is 32.5% - I am assuming I have already reached the limit of £32k


  • initial cost: -£1,800.00
  • initial tax: -£585
  • ongoing cost: -£300/month
  • ongoing tax: -£97.5/month
  • lost value of car: £0
  • total: -£11,925.00


  • initial cost: -£25,000.00
  • initial tax: -£8,125.00
  • ongoing cost: £0
  • ongoing tax: £0
  • lost value of car: -£5000 (over 2 years)
  • car sold: +£20,000.00
  • total: -£18,125.00

I am not taking under consideration car insurance, fuel nor repair costs as these are irrelevant for the purpose of this question.

Am I missing something or the financial advisory books just focusing on people working as employees?

  • Your arithmetic is wrong. The cost of the second option, in the terms that you’re expressing it, is £13,125 — £8,125 in tax and a £5,000 loss on the sale.
    – Mike Scott
    Commented Sep 29, 2018 at 15:25
  • But I am also "losing" on the higher tax bracket whereas it could be withdrawn more tax efficiently over an extended period of time for example.
    – matewilk
    Commented Sep 29, 2018 at 15:27

1 Answer 1


You will pay tax whenever you take money out of your company, so you can’t compare the amounts like that. Money in your pocket that has already been taxed is worth more to you than the same amount of money sitting in your company, just like money in an ISA is worth more than the same amount of money in a pension. But in any case, I would suggest buying an older second hand car instead. You can get a perfectly good car for £5,000.

  • I am assuming that the money is sitting on the LTD account, not in my pocket. I highlighted it 3x in the question and in the title too :)
    – matewilk
    Commented Sep 29, 2018 at 14:50
  • 1
    @matewilk But the £20,000 you get when you sell the car is money in your pocket, not in your company. You’re comparing it on a 1-for-1 basis with money in your company.
    – Mike Scott
    Commented Sep 29, 2018 at 15:05
  • Yes, on 1-for-1 basis, because in these two cases the money is in my company. Before any transaction happens, the money is always on my company's bank account. I don't need £20,000.00 in my pocket anyway. And if I needed, I would have to pay tax for it so adding £6,500.00 tax at the end of the leas the cost is very comparable because it is £18.425.00 (lease) vs £18,125.00 (cash). But I don't need £20k in my pocket at the end of any of these transactions, to be honest.
    – matewilk
    Commented Sep 29, 2018 at 15:12
  • @matewilk If you don’t need money in your pocket after the two years, what are you planning to be driving at that point?
    – Mike Scott
    Commented Sep 29, 2018 at 15:15
  • 1
    There are different ways of closing down a company, some are more tax efficient then the others, I could also make the company dormant, and still able to withdrawal funds below the higher tax bracket. This is a topic for a different discussion, so your assumption is wrong in my opinion because although I would have to pay tax for sure, it doesn't mean I would have to pay 32.5% tax.
    – matewilk
    Commented Sep 29, 2018 at 15:23

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