The short answer
Capital allowances are tax deductions for qualifying capital expenditure. The correct route depends on the asset and claimant: common options include the £1 million Annual Investment Allowance, company full expensing, 50% and 40% first-year allowances, 14% or 6% writing-down allowances, and 3% Structures and Buildings Allowance. Property fixtures also require transaction-specific pooling and valuation evidence.
What are capital allowances?
Capital allowances are tax deductions for qualifying capital expenditure. Instead of treating the full cost of every long-life asset as an ordinary business expense, the tax rules identify expenditure that can be deducted immediately or over time when calculating taxable profits.
The phrase covers several allowances rather than one universal rate. The correct treatment depends on the asset, when it was acquired, whether it was new or second-hand, the type of claimant, the available annual limits and how the asset is used. A building project can contain expenditure in several categories at once.
A deduction, not a grant
A £100,000 capital allowance does not normally produce a £100,000 payment. It reduces taxable profit by £100,000. The cash-tax effect then depends on the claimant’s tax rate, profits, losses and the timing of the deduction.
Who can claim capital allowances?
Companies, sole traders, partnerships and some property businesses can claim where they incur qualifying expenditure and meet the conditions for the relevant allowance. Some first-year allowances are restricted to companies, while the Annual Investment Allowance is available more widely.
- 01
Identify who incurred the cost
Confirm the legal owner or qualifying lessee, the trade or property business, and the accounting period in which expenditure was incurred.
- 02
Establish what was acquired
Separate plant and machinery, integral features, structures, land, dwellings, repairs and non-qualifying construction costs.
- 03
Check the acquisition history
New, unused and second-hand assets can have different routes. Property purchases also require the seller’s historic pooling and disposal position.
- 04
Select the available allowance
Compare AIA, full expensing, first-year allowances, writing-down allowances and SBA without claiming two allowances on the same expenditure.
- 05
Build the evidence trail
Reconcile invoices, contracts, surveys, valuations and asset use to the tax computation and fixed-asset register.
What are the current capital allowance rates?
The old guide presented these rates as an image. The current position is rebuilt below as searchable HTML and reflects changes effective in 2026. It is a route map, not a substitute for classifying each asset and checking every condition.
| Allowance | Headline amount or rate | Typical scope and key limits |
|---|---|---|
| Annual Investment Allowance | 100% deduction, within a £1 million annual limit | Most qualifying plant and machinery, including many main-rate and special-rate assets. The limit can be shared between connected businesses and adjusted for short periods. Cars and certain assets previously owned or gifted do not qualify. |
| Full expensing | 100% first-year deduction | Companies buying new and unused main-rate plant and machinery from 1 April 2023. Cars are excluded and restrictions can apply to leasing and mixed or non-business use. |
| 50% first-year allowance | 50% first-year deduction | Companies buying new and unused special-rate plant and machinery from 1 April 2023. The remaining balance generally enters the special-rate pool. |
| 40% first-year allowance | 40% first-year deduction | New and unused main-rate plant and machinery bought on or after 1 January 2026. Available to qualifying businesses beyond companies; cars are excluded. The balance can receive writing-down allowances later. |
| Main-pool writing-down allowance | 14% a year on a reducing balance | Main-rate plant and machinery not relieved in full. The rate reduced from 18% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax; a hybrid rate applies where a period spans the change. |
| Special-rate writing-down allowance | 6% a year on a reducing balance | Special-rate expenditure, including integral features and certain long-life assets, to the extent no faster allowance has been used. |
| Structures and Buildings Allowance | 3% a year on a straight-line basis | Qualifying non-residential construction and renovation expenditure, normally over 33⅓ years. The claimant needs an allowance statement and the structure must meet the contract-date, ownership and use conditions. |
What changed in 2026?
A permanent 40% first-year allowance began for qualifying main-rate expenditure incurred from 1 January 2026. The main-pool writing-down rate then fell from 18% to 14% from April 2026. Any older schedule still showing 18% as the current standard rate needs to be updated, and an accounting period spanning the change requires a hybrid calculation.
What expenditure can qualify?
Plant and machinery is not defined by a simple product list. The analysis usually asks whether the item performs a function in the business rather than merely forming part of the setting in which the business operates. The same refurbishment invoice can therefore contain qualifying assets, special-rate assets, repairs, structural works and excluded costs.
Often considered
- Manufacturing and process equipment.
- Office equipment, furniture and some IT systems.
- Lifts, escalators and moving walkways.
- Electrical systems, including lighting systems.
- Space and water-heating systems.
- Air conditioning, cooling and ventilation systems.
- Cold-water systems and external solar shading.
- Safety, security and business-specific installations.
Needs separate treatment
- Land and the cost of acquiring it.
- The building fabric and ordinary structural elements.
- Dwellings and assets used within dwellings.
- Business cars and assets with private use.
- Repairs that may already be revenue expenditure.
- Non-residential structures potentially within SBA.
- Assets acquired with a commercial property.
- Expenditure met by another party.
Integral features are normally allocated to the special-rate pool. HMRC’s current list includes lifts and escalators, heating and cooling systems, hot- and cold-water systems, electrical systems and external solar shading. The actual boundary between an integral feature, other plant and the building fabric must still be established from the plans and facts.
How do capital allowances work on commercial property?
A commercial building purchase does not create a new £1 million AIA claim simply because the property cost £1 million. The purchaser must identify qualifying fixtures embedded in the property and then apply transaction-specific rules to determine the tax value transferred from the seller.
- 1
Review the contract
Check warranties, replies to enquiries, prior claims and the agreed treatment of fixtures before completion where possible.
- 2
Establish pooling
Determine whether the seller was required to pool the fixture expenditure and whether the statutory pooling requirement has been met.
- 3
Fix the value
A joint section 198 or section 199 election can fix the seller’s disposal value and purchaser’s qualifying expenditure. The election normally has a two-year statutory window.
- 4
Classify and claim
Allocate qualifying values to the correct pools and retain the agreement, survey and valuation evidence with the computation.
The elected amount cannot exceed the seller’s qualifying amount or the price attributable to the fixture. A nominal election can permanently restrict a purchaser’s claim, while failing to resolve the position within the relevant window can create a costly dispute. Capital allowances should therefore be addressed during transaction due diligence, not assumed to be recoverable indefinitely afterwards.
How much of a property project qualifies?
There is no reliable universal percentage for a purchase, refurbishment or fit-out. The figures shown in the old guide were broad illustrations, not statutory rates. Building type, specification, age, prior ownership, contractual allocation and the quality of cost records can materially change the result.
| Project | Evidence to examine | Why results differ |
|---|---|---|
| Property acquisition | Sale agreement, section 198 election, seller pooling history, valuation and asset survey. | The purchaser’s value can be constrained by the seller’s historic tax position and the transaction documents. |
| New construction | Cost plan, bills of quantities, drawings, specifications, variations and professional-fee allocation. | The use and technical specification determine how much is plant, integral features, SBA expenditure or excluded fabric. |
| Refurbishment | Scope of works, strip-out records, invoices, repair analysis and replacement schedules. | Some work may be an ordinary repair; other costs replace or create capital assets in different pools. |
| Tenant fit-out | Lease, landlord contributions, fit-out specification, invoices and ownership of installed assets. | The party incurring cost may not own every fixture, and contributions or lease terms can change entitlement. |
A worked capital allowances example
Assume a company incurs £240,000 on a fit-out after a detailed review: £150,000 is qualifying main-rate plant, £60,000 is qualifying special-rate integral features and £30,000 is non-qualifying building fabric. It has its full £1 million AIA limit available and no connected-business restriction.
| Main-rate plant | £150,000 |
|---|---|
| Special-rate integral features | £60,000 |
| AIA claimed | £210,000 |
| Building fabric not relieved as plant | £30,000 |
| Illustrative tax reduction at 25% | £52,500 |
This is a timing illustration, not a quotation. It assumes the costs, claimant, use, payment, AIA limit and Corporation Tax rate all meet the stated conditions. Choosing AIA also uses part of the annual limit, so businesses may prioritise special-rate expenditure where other 100% routes are available for main-rate assets.
What records support a claim?
Evidence to retain
- Purchase agreements, leases and completion statements.
- Fixed-asset registers and general-ledger reconciliations.
- Invoices, cost plans and bills of quantities.
- Drawings, specifications and mechanical/electrical schedules.
- Asset photographs, surveys and site notes.
- Allocation methods for preliminaries and professional fees.
- Section 198 or 199 elections and seller pooling evidence.
- SBA allowance statements and qualifying-use dates.
- Business/private-use and disposal records.
- Tax computations showing the selected allowance and pool.
The claim should reconcile from the accounts to the tax computation. Where invoices bundle several systems together, a surveyor-supported cost allocation may be needed, but the methodology must remain grounded in the actual property and expenditure.
To review the assets and supporting records behind your claim, explore our capital allowances service.
Frequently asked questions
Does my accountant already claim every capital allowance?
They may claim assets that are clearly identified in the fixed-asset register. Property projects often require drawings, specifications, transaction documents and a detailed survey to identify embedded fixtures and allocate bundled costs. The right approach is to reconcile the specialist analysis with the accountant’s existing pools so nothing is duplicated.
Are capital allowance claims never time-barred?
No blanket rule should be used. A tax return has normal filing and amendment limits; property fixtures can have pooling and fixed-value conditions, including a two-year election window; and SBA depends on an allowance statement. Some unclaimed qualifying expenditure may remain available in a pool, but entitlement and timing must be checked asset by asset.
Can AIA be claimed on a commercial building?
AIA does not apply to the purchase price of land or the ordinary building fabric. It can apply to qualifying plant and machinery within a building, subject to ownership, transaction, annual-limit and other conditions.
Can full expensing and AIA be claimed on the same cost?
No. More than one route may be available, but the same expenditure cannot receive two deductions. The business should allocate its claim deliberately, especially where AIA is limited and special-rate assets would otherwise receive relief more slowly.
What happens when an asset is sold?
A disposal value is normally brought into the relevant pool and can create a balancing charge or reduce the remaining pool. Full-expensing and first-year-allowance disposals have specific rules. Property fixtures also require the buyer and seller to coordinate the transferred value.
Do structures and buildings qualify?
Qualifying non-residential construction and renovation expenditure may receive SBA at 3% a year where the conditions are met. Land, dwellings, planning permission and the cost of plant and machinery are excluded from the SBA qualifying amount, and an allowance statement is required.
Check the detail
Sources & scope
United Kingdom. Rates and rules are checked to 5 September 2026. The 40% first-year allowance applies to qualifying expenditure from 1 January 2026; the main-pool writing-down rate changed to 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Periods spanning the rate change, property transactions, connected businesses, mixed use and disposals need specific calculations.
This is an InnoFund explanation, not official guidance or advice on a particular claim. The facts, relevant law and applicable scheme rules must be considered together.
Sources checked: 5 September 2026. This is separate from expert sign-off.
- HMRC: Claim capital allowances
Public overview, qualifying expenditure and available routes
- HMRC: Annual Investment Allowance
100% deduction, £1 million limit and exclusions
- HMRC: Full expensing and 50% first-year allowance
Company eligibility, rates and asset conditions
- HMRC: 40% first-year allowance
Expenditure from 1 January 2026 and qualifying conditions
- HMRC: Rates and pools
Current 14% main-pool and 6% special-rate writing-down allowances and integral features
- HMRC: 2026 first-year and writing-down rate changes
Commencement dates and policy scope
- HMRC: Structures and Buildings Allowance
3% rate, qualifying use, allowance statement and claim period
- HMRC Capital Allowances Manual: fixtures election
CA26800; section 198/199 election and valuation limits
- HMRC Capital Allowances Manual: election procedure
CA26850; form and two-year time limit
- HMRC Capital Allowances Manual: integral features
CA22300; statutory categories and related provisions