Capital Allowances UK
Capital Allowances UK: Rates, Rules & Tax Savings
Capital allowances let businesses deduct qualifying capital expenditure from taxable profits. This can reduce Corporation Tax or Income Tax when you invest in equipment, machinery, vehicles and certain commercial property fixtures.
Discover what qualifies, how the 2026 rules work, and how to choose the right allowance for your business.
Rates shown reflect the rules applying in October 2026. Eligibility, accounting-period dates and business circumstances affect claims.
What are capital allowances in the UK?
Capital allowances are tax deductions available to businesses that spend money on qualifying capital assets. Rather than deducting accounting depreciation, businesses can claim tax relief under the capital allowances rules.
For example, if a limited company buys £20,000 of qualifying equipment and claims 100% relief, it can reduce its taxable profits by £20,000. At an illustrative Corporation Tax rate of 25%, this could save £5,000 in tax.
Important distinction: A £20,000 capital allowance is a £20,000 deduction from taxable profits — not a £20,000 tax refund. The actual tax saving depends on the applicable tax rate, available profits and the business's tax position.
Capital allowances rates for 2026
The UK offers several capital allowances. The appropriate claim depends on the asset, whether it is new or second-hand, the type of business and the date expenditure is incurred.
| Allowance | Rate | Who can claim? | Key conditions |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100%, up to £1m | Most qualifying businesses | Qualifying plant and machinery; generally excludes cars |
| Full expensing | 100% | Qualifying companies | New, unused main-rate plant and machinery; restrictions apply |
| Special-rate first-year allowance | 50% | Qualifying companies | New, unused special-rate plant and machinery |
| New first-year allowance | 40% | Companies and unincorporated businesses | New, unused main-rate assets from 1 January 2026; excludes cars |
| Main-pool writing-down allowance | 14% annually | Qualifying businesses | Reducing balance; transitional rates may apply |
| Special-rate writing-down allowance | 6% annually | Qualifying businesses | Special-rate expenditure and relevant assets |
| Structures and Buildings Allowance | 3% annually | Eligible businesses | Qualifying non-residential construction or renovation expenditure |
The £1 million AIA limit is normally adjusted for accounting periods shorter than 12 months and may be shared by related businesses. Writing-down allowance rates may also require time apportionment.
Which capital allowance should you claim?
Annual Investment Allowance
Often the simplest option for SMEs. Eligible expenditure on machinery, computers, office equipment and certain fixtures may be deducted immediately, including qualifying second-hand assets.
Example: £15,000 of qualifying equipment can produce a £15,000 deduction.
Full expensing
Qualifying companies can deduct the entire cost of new, unused main-rate plant and machinery in the year of purchase. It can be especially useful for investment exceeding the available AIA limit.
Specific restrictions and disposal rules apply.
First-year allowance
Available for eligible new main-rate plant and machinery expenditure from 1 January 2026, including certain leasing assets and purchases by unincorporated businesses.
The unrelieved balance normally enters the relevant pool for future writing-down allowances.
What changed in 2026?
Two significant changes affect capital allowance planning:
- 1 January 2026: A new permanent 40% first-year allowance became available for qualifying new main-rate plant and machinery.
- April 2026: Main-pool writing-down allowances reduced from 18% to 14%, effective 1 April for Corporation Tax and 6 April for Income Tax.
Businesses with accounting periods spanning the relevant April change date must calculate a hybrid writing-down allowance rate. The special-rate pool remains at 6%.
What assets qualify for capital allowances?
Common qualifying expenditure
- Computers, laptops and business servers
- Manufacturing machinery and tools
- Office furniture and equipment
- Commercial vehicles and vans
- Eligible heating, electrical and ventilation systems
- Certain commercial property fixtures
- Qualifying business cars, subject to separate rules
Expenditure requiring care
- Land and most land acquisition costs
- Ordinary building fabric and structural works
- Stock held for resale
- Assets used partly for private purposes
- Assets acquired for leasing
- Second-hand assets and connected-party transactions
- Assets acquired before a business starts trading
Some items in the second column can qualify under specific provisions. Eligibility should be assessed by the nature and use of the expenditure rather than its accounting description alone.
Capital allowances for limited companies and sole traders
Corporation Tax relief
Limited companies may use AIA, full expensing, qualifying first-year allowances and writing-down allowances. The resulting deduction feeds into the company's Corporation Tax computation.
At an illustrative 25% Corporation Tax rate, a £40,000 deduction could reduce tax by £10,000 where sufficient taxable profits exist and that marginal tax effect applies.
Income Tax relief
Unincorporated businesses can potentially claim AIA and other qualifying allowances, including the new 40% first-year allowance. Full expensing is not available to sole traders.
Businesses using the cash basis generally deduct qualifying capital expenditure as an expense instead, with separate capital allowance rules for business cars and other exceptions.
Capital allowances tax-saving calculator
Enter the qualifying asset cost, select an allowance and choose an illustrative tax rate to estimate the first-year deduction and potential tax saving.
Estimated first-year tax saving
Illustrative estimate only. Assumes sufficient taxable profits, full eligibility and a constant effective tax rate. Does not model marginal relief, tax bands, pool adjustments, private use, disposals or timing differences. Unrelieved expenditure is not necessarily the closing tax pool balance.
Capital allowances: three worked examples
£12,000 office equipment
A profitable limited company purchases qualifying office equipment for £12,000 and claims AIA.
Illustrative tax saving at 25% Corporation Tax.
£100,000 new machinery
Eligible new machinery qualifies for the 40% first-year allowance, giving an immediate deduction of £40,000.
Illustrative initial tax saving at 25%. The remaining £60,000 may qualify for future writing-down allowances.
£50,000 special-rate asset
Where AIA is unavailable and the asset qualifies for the company's 50% first-year allowance, the immediate deduction is £25,000.
Illustrative initial tax saving at 25%, with the balance potentially relieved over time.
Special rules for cars, vans and property
Business cars and electric vehicles
Cars are generally excluded from AIA, full expensing and the new 40% first-year allowance. A new, unused zero-emission car may qualify for a separate 100% first-year allowance, subject to the rules applicable at the purchase date.
Other cars generally receive writing-down allowances according to their CO₂ emissions and acquisition date. Vans are usually treated differently from cars and may qualify for AIA.
Private use by a sole trader or partner can restrict the deduction. Employees' company cars also involve separate benefit-in-kind considerations.
Commercial property and fixtures
Qualifying integral features can include electrical systems, heating and ventilation installations, lifts and certain water systems. These commonly fall within the special-rate category.
Structures and Buildings Allowance may apply to qualifying non-residential construction expenditure at 3% annually, subject to the relevant conditions.
When purchasing commercial property, existing fixtures, prior claims and required elections or pooling arrangements should be reviewed before completing the transaction.
Practical planning point: A commercial property purchase price should not automatically be treated as entirely eligible for capital allowances. Land, structural expenditure and qualifying fixtures must be identified and analysed separately.
How to claim capital allowances
First-year allowances and AIA must generally be claimed for the relevant period of expenditure, subject to applicable claim and amendment deadlines. Review claims before the filing deadline rather than assuming unused first-year relief can simply be claimed in a later year.
Six capital allowances pitfalls
1. Claiming depreciation
Accounting depreciation is normally added back in tax computations. Capital allowances provide the relevant tax deduction instead.
2. Assuming every asset qualifies for AIA
Cars, certain transactions and restricted expenditure require separate treatment.
3. Ignoring asset disposals
Selling an asset can affect tax pools and may trigger balancing charges or other disposal adjustments.
4. Missing commercial property fixtures
Qualifying fixtures can be overlooked when acquisition costs or renovation invoices are not analysed properly.
5. Using the wrong rate
The 2026 main-pool reduction and transitional hybrid rates must be reflected in the calculation.
6. Assuming the largest immediate claim is always best
Available profits, losses, marginal tax rates and future disposals can affect the optimal timing of relief.
Capital allowances UK: FAQs
What is the Annual Investment Allowance for 2026?
The standard AIA limit is £1 million for a 12-month period. It allows a 100% deduction for eligible expenditure, subject to restrictions, shared limits and accounting-period adjustments.
What is the main writing-down allowance rate in 2026?
The main-pool rate is 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. Accounting periods crossing the relevant change date require a hybrid rate. The special-rate pool remains at 6%.
Can sole traders claim capital allowances?
Yes. Sole traders can claim qualifying allowances, although cash-basis businesses generally deduct qualifying capital expenditure as an expense instead. Cars have separate rules. Sole traders cannot claim full expensing.
Can you claim capital allowances on second-hand equipment?
Qualifying second-hand plant and machinery may be eligible for AIA or writing-down allowances. Full expensing and the new 40% first-year allowance generally require new and unused assets.
Can you claim capital allowances on a car?
Yes, qualifying business cars may attract writing-down allowances, and certain new zero-emission cars may qualify for 100% first-year relief. Cars are generally excluded from AIA and full expensing.
Are capital allowances the same as business expenses?
No. Ordinary revenue expenses are generally deducted under trading expense rules. Capital allowances provide tax relief for qualifying capital expenditure that would not ordinarily be deducted in full as a revenue expense.
Can you claim capital allowances if your company makes a loss?
Qualifying allowances can contribute to a tax loss, subject to the relevant rules. However, an immediate cash tax saving is not guaranteed. The treatment of losses and the timing of relief should be considered.
Do capital allowances affect VAT?
Capital allowances and VAT are separate systems. Where input VAT is recoverable, the capital allowances cost generally excludes that recoverable VAT. Irrecoverable VAT may form part of the qualifying expenditure.
Can capital allowances be claimed on commercial buildings?
Some fixtures and integral features can qualify for plant and machinery allowances. Qualifying construction costs may instead fall within Structures and Buildings Allowance. Land and most ordinary building fabric do not qualify for plant and machinery allowances.
What happens when you sell an asset after claiming allowances?
Disposal proceeds generally affect the relevant capital allowances pool, subject to statutory limits. Full expensing and some first-year allowances can produce specific balancing charges. The tax effect should be considered before sale.
Related UK business tax guides
Limited Company Tax
Understand Corporation Tax, taxable profits and company tax planning.
How to Reduce Corporation Tax
Explore legitimate tax reliefs and deductions available to companies.
What Is Tax Deductible?
Compare allowable revenue expenditure with capital expenditure.
Car Leasing Through Your Business
Understand vehicle costs, tax relief and company car considerations.
Make the most of your business tax reliefs
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