End of lease – and what next? One of the possible options is to buy out the car at the end of the lease for an amount specified in the contract, which is always lower than the initial price. In 2024, we have the choice between a private buyout and a business buyout. How do the different types of buyouts differ, and which is more worthwhile?
Car lease buy-out for private individual 2024
If the lessor offers a private buyout, you can freely take advantage of this option and purchase for personal use a car previously used for business purposes.
Key Information
- Buying out a leased car as a private individual and VAT – in this case, as a general rule, you cannot deduct VAT from the buy-out price of the car. However, if the car is used for both private and business purposes (related to business activities), you can deduct 50% of the VAT on the vehicle’s running costs, such as fuel and servicing.
- Buying out a lease as a private individual and the associated costs – the costs associated with such a buy-out cannot be treated as tax-deductible expenses, unless the car is to be used for both private and business purposes: in that case, only 20% of the expenses incurred can be treated as tax-deductible.
- Sale of a car purchased from a lease for private use – a car purchased from a lease for private use can be sold tax-free only after 6 years (until 2022, 6 months was sufficient).
Transferring a purchased car as a gift
The regulations introduced as part of the New Deal allow for buyouts from leases to a private individual, and then transferring the car as a gift to a person from zero tax group, which includes spouses, descendants (children, grandchildren), ascendants (parents, grandparents), siblings, stepchildren, stepfathers and stepmothers. Such a person may sell the gifted car after six months without paying income tax or inheritance and gift tax. A car given as a gift may also be used in business activities under a loan for use agreement, which allows 75% of the expenses incurred to be treated as costs.
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Buying out a car from a lease within a business activity 2024
A car purchased outright after a lease can also be used within your business operations. It's worth remembering that the method of purchase has a significant impact on matters related to VAT deduction and the classification of the vehicle for company costs or later sale.
Key Information
- Buying out a leased car for a business and VAT – if the car is to be used for both private and business purposes, you can deduct 50% of the VAT amount; however, you can deduct 100% of the VAT if the vehicle is used exclusively for business purposes. To deduct 100% of VAT, you must also meet additional requirements: use the vehicle exclusively for business purposes, keep a mileage log for VAT purposes, register the vehicle on the VAT-26 form, and draw up a set of rules for the use of the vehicle within the company.
- Lease buyout for a business and costs – an entrepreneur has two options: they can include the car in the fixed assets register and depreciate it, or they can account for the car as a one-off cost in the month it is put into use. The latter option can only be used if the buyout value does not exceed PLN 10,000 net for VAT taxpayers/gross for taxpayers exempt from VAT.
- Purchase for business purposes versus sale – the disposal of a company vehicle constitutes a supply of goods for consideration, which is subject to tax at the rate of 23%. The business owner may be entitled to deduct the remaining VAT amount from the purchase invoice by means of an input tax adjustment: for motor vehicles with an initial value of up to PLN 15,000, the adjustment period is 12 months.
Car buy-out from leasing – accounting
Do you want to buy out a car from a lease agreement, either for yourself or for your company? Are you unsure which option is more financially beneficial and need tax advice? Get in touch with us – at Open Profit, we provide professional online accounting services For entrepreneurs running sole proprietorships, individuals on B2B contracts and small companies. We will check if purchasing a car from leasing can be an expense, verify issues related to VAT deduction and answer your questions. If you are considering a buyout from leasing and want to stay up to date with current regulations, we invite you to cooperate!
FAQ – Frequently asked questions about buying out a car from a lease
What is the difference between operating lease and finance lease?
There are two types of leasing:
– Operating lease – upon termination of the agreement, there is an option to buy out the car from the lease for business or private use. During the term of the agreement, the car is part of the lessor's fixed assets.
– Financial lease – ownership automatically passes to the user upon signing the agreement, as the car becomes a fixed asset of the lessee upon conclusion of the contract.
Is the purchase of a car from leasing a cost?
It depends on the type of lease buy-out. Costs associated with a buy-out by a private individual cannot be treated as tax-deductible expenses (unless the vehicle is also to be used for business purposes, in which case 20% of the expenses incurred may be deducted). In the case of a buy-out by a company, the business owner may enter the car in the fixed assets register or recognise it as an expense.
