The lease versus buy decision on your practice premises is one of the larger capital choices a dental practice owner makes, and it sits alongside, but is separate from, how you finance your equipment. This is a decision framework for the premises: the building you trade from. It is not about chairs, scanners or autoclaves. The aim here is to give you a structured way to weigh leasing against buying across cash flow, flexibility, the pension purchase route, the capital-allowances position, the position on a later sale, and the VAT point that catches people out.
If you want the head-to-head comparison of the two options on their own terms, read the sibling guide, should you buy the freehold or lease your dental practice premises. This page is the wider decision framework that wraps around that choice and adds the structuring layer (how you hold a freehold, what reliefs attach, and what happens on exit).
The Two Options in Plain Terms
Leasing means you rent the premises from a landlord under a commercial lease, typically with rent reviews, repairing obligations and a fixed or rolling term. Buying means you acquire the freehold (or a long leasehold), usually with a commercial mortgage, and you own the building.
The important structural point that the simple framing misses is that "buying" is rarely as simple as the practice company owning the building. In dentistry the freehold is very often held personally by the principal, or inside a pension (a SIPP or SSAS), and then let to the practice. That choice of holding vehicle changes the tax outcome substantially, so it belongs in the decision from the start, not as an afterthought.
Cash Flow and Capital Commitment
The first axis is cash. A lease asks for far less capital at the outset (a deposit and the first rent), which leaves your capital free for equipment, fit-out and working capital during the early years when the practice most needs it. A purchase asks for a deposit on the property plus the costs of acquisition, and it commits capital that then cannot be deployed elsewhere in the business.
Against that, a lease is a continuing fixed cost that rises at rent reviews, while a purchase converts much of your occupancy cost into mortgage repayment, of which the capital element builds equity in an asset you own. Ownership also brings costs that a fully repairing lease may pass to the tenant in any case (buildings insurance, structural repairs, business rates), so the comparison is rarely as clean as "mortgage versus rent".
The practical test is your time horizon and your appetite to tie up capital. A long, stable horizon and spare capital tilt towards buying. A shorter or uncertain horizon, a plan to expand to other sites, or a need to keep capital working in the practice, tilt towards leasing. For the wider start-up cash picture see the real cost of setting up a dental practice from scratch, and for how the purchase itself is funded see how dentists secure acquisition finance for a practice purchase.
The Tax Treatment Side by Side
Tax is where the two routes diverge most, and where the holding structure on a purchase does most of the work.
Leasing: a clean revenue deduction
Rent paid under a commercial lease, wholly and exclusively for the trade, is a revenue deduction against practice profits. For an unincorporated practice it reduces profits taxed at income tax rates plus Class 4 National Insurance. For an incorporated practice it reduces profits taxed at corporation tax: 19% on profits up to £50,000, 25% above £250,000, with marginal relief between those figures (FY2025 and FY2026). The treatment is simple, there is no asset to depreciate, and there are no capital allowances to track. That simplicity has a real value of its own.
Buying: deductible rent, but to a different recipient
Where the practice does not own the freehold but pays rent to whoever does (you personally, or your pension), the practice still gets the same revenue deduction for the rent. The difference is who receives that rent and how it is then taxed:
- Held personally and let to the practice: you receive rental income personally, taxable at your marginal income-tax rate, against which the mortgage-interest cost of a commercial property let to your trading practice and other property expenses are deductible. You hold a growing asset outside the business.
- Held in a SIPP or SSAS and let to the practice: the pension receives the rent free of income tax, and capital growth in the property is sheltered inside the pension. This is a recognised tax-efficient route for owning dental premises, because it converts a deductible business cost (rent) into a tax-free building block for your retirement.
The pension route is genuinely attractive but it is not a free lunch. Funding the purchase means getting money into the pension, and pension contributions are constrained by the annual allowance of £60,000 (2025/26), which tapers for high earners where threshold income exceeds £200,000 and adjusted income exceeds £260,000, down to a £10,000 floor. Unused allowance from the previous three tax years can be carried forward, which often helps fund a purchase. The structure (borrowing limits inside the pension, the lease terms between pension and practice, valuation on the way in) is involved enough that it should be built with specialist pension and tax advice, not assembled from a template.
Capital allowances on a bought building
Buying brings reliefs that leasing cannot, but they are narrower than people assume because the land never attracts allowances:
- Structures and Buildings Allowance (SBA): qualifying construction or structural expenditure incurred on or after 29 October 2018 attracts SBA at 3% a year. It covers the building structure, not the land and not the plant already in the capital-allowance pools. The dedicated guide is Structures and Buildings Allowance for dental practices.
- Fixtures within the building: integral features such as electrical systems, cold and hot water, heating, and air and ventilation sit in the special-rate pool and attract a writing-down allowance of 6%. General plant within a fit-out sits in the main-rate pool, where the writing-down allowance is 18%, reducing to 14% from April 2026 (Finance Act 2026 s.28). The Annual Investment Allowance of £1,000,000 a year gives 100% relief on qualifying plant and is best aimed at the special-rate items first.
- The s.198 election on a purchase: when you buy a property that already contains fixtures, a CAA 2001 s.198 joint election with the seller fixes the value attributed to those fixtures, and it must be made within two years. Miss it and the buyer's fixtures allowances are lost permanently. This is one of the most common, and most preventable, losses on a practice property purchase.
What Happens on Exit
The exit position is asymmetric, and it is a strong reason buying can pay off over a long horizon.
With a lease, there is no property to dispose of: you assign or surrender the lease and walk away. With a freehold, a later sale is a disposal that can trigger a capital gain. Where the property has been used in your trading business, Business Asset Disposal Relief (BADR) can apply to a qualifying disposal, including via the associated disposal route where you sell the property at the same time as you withdraw from the business that used it. BADR carries a reduced CGT rate on qualifying gains up to a £1m lifetime limit per individual, but the rate has been rising: 14% for disposals from 6 April 2025 to 5 April 2026, and 18% from 6 April 2026. The conditions (a qualifying two-year period, and for an associated disposal the link to a material withdrawal from the business) are specific, and an associated disposal can be restricted where rent has been charged, so the relief should be confirmed in advance rather than assumed.
If the freehold sits in a pension, the position is different again: a later sale by the SIPP or SSAS is generally free of CGT inside the pension wrapper, which is a further point in favour of the pension route for a long hold.
The VAT Trap on a Purchase
This is the single point most likely to be missed, and it only bites on a purchase. Most dental income is VAT-exempt (the supply of dental care and prostheses is exempt under VATA 1994 Schedule 9 Group 7), which means a dental practice usually cannot reclaim VAT it is charged on its costs.
Commercial property is exempt from VAT by default, but a seller can opt to tax, which adds VAT at 20% to the sale price. If you buy an opted property, an exempt or partly exempt dental practice generally cannot recover that VAT, so it becomes a real, unrecoverable addition to the purchase cost rather than a cash-flow item. Where a partly exempt practice spends £250,000 or more on land or buildings, the Capital Goods Scheme can also bring the recovery position under review over a ten-year period. The practical rule is simple: establish the seller's option-to-tax position before you agree a price, and factor any irrecoverable VAT into the comparison with leasing. A leased premises sidesteps this entirely, because rent on an opted lease is a deductible cost in any event and there is no capital VAT to absorb.
Lease vs Buy: At a Glance
| Factor | Lease | Buy (freehold) |
|---|---|---|
| Upfront capital | Low (deposit plus first rent) | High (property deposit plus acquisition costs) |
| Tax on the payment | Rent fully deductible against trade profit | Rent still deductible by the practice; received personally or by the pension |
| Holding vehicle | Not applicable | Often personal ownership or a SIPP/SSAS letting to the practice |
| Capital allowances | None on the building | SBA at 3% on qualifying structure; fixtures at 6% (s.198 election) |
| Pension benefit | None | Pension route lets rent grow tax-free inside a SIPP/SSAS |
| Capital growth | To the landlord | To you (or your pension) |
| Exit | Assign or surrender; no disposal | CGT on sale; BADR/associated disposal may apply; CGT-free inside a pension |
| VAT | Rent deductible; no capital VAT to absorb | Option-to-tax trap: irrecoverable VAT on an opted purchase |
| Flexibility | High; easier to relocate or expand | Lower; capital and exit tied to the building |
A Framework for Deciding
Work through these in order. The first two usually settle the direction; the rest refine the structure.
- Horizon and stability. How long do you realistically intend to trade from this site, and how stable is the location and your plan for it? A long, settled horizon supports buying. An uncertain or short one, or a multi-site ambition, supports leasing.
- Capital without starving the practice. Can you commit a property deposit without depriving the practice of the working capital and equipment spend it needs to grow? If not, leasing protects the business first.
- If buying, choose the holding vehicle. Personal ownership gives you a growing asset and BADR potential on exit. The pension (SIPP/SSAS) route shelters the rent and the growth from tax but is constrained by the annual allowance and is more involved to set up. Model both.
- Price the reliefs and the traps. On a purchase, secure the s.198 fixtures election within the two-year window, identify SBA-qualifying spend, and resolve the seller's VAT option-to-tax position before agreeing the price.
- Look ahead to exit. If a sale of the practice and premises together is plausible, check whether an associated disposal can bring the property within BADR, and confirm the rate band that will apply at your likely timing.
How This Differs From Equipment Lease vs Buy
It is worth being explicit, because the two decisions use similar language but follow different tax routes. With equipment, an outright purchase or hire purchase brings the asset into the capital-allowance pools (so the Annual Investment Allowance or first-year allowances can front-load relief), while a finance lease or operating lease gives no allowances to the user but makes the rentals deductible. With premises, the building's structure attracts SBA at 3% rather than fast plant allowances, the land attracts nothing, and the bigger levers are the holding vehicle, the CGT position on exit, and the VAT option-to-tax point. Do not carry an equipment instinct straight across to the building.
Where Professional Input Pays for Itself
This decision rewards getting the structure right at the outset, because several of the reliefs (the s.198 election in particular) cannot be recovered once the window closes, and the pension and VAT points are easy to get wrong. A specialist dental accountant can model the personal-versus-pension holding outcomes, time a disposal against the BADR rate bands, and flag the VAT position before it becomes a cost. A commercial property solicitor handles the lease terms or purchase contract and the option-to-tax enquiry, and a pension specialist sets up a SIPP or SSAS purchase correctly.
For tailored help weighing leasing against buying and structuring a freehold the right way, our specialist dental accounting services can model your options and put the optimal structure in place for your practice.