Annual Investment Allowance 2025/26: The £1m Cap, in Plain Terms

The annual investment allowance (AIA) gives 100% tax relief, in the year you spend the money, on qualifying plant and machinery up to a set annual cap. For the 2025/26 tax year that cap is £1 million. This page is the year-anchored snapshot: what the £1 million limit means for 2025/26, how it compares with 2024/25, what actually qualifies, and the dwelling-house rule that blocks most residential landlords from claiming at all. For the wider mechanics, our full annual investment allowance guide covers the head term, and the capital allowances pillar sets out the complete CAA 2001 decision framework.

What is the AIA limit for the 2025/26 tax year?

The AIA limit is £1,000,000 for 2025/26. That figure is written into the legislation itself: section 51A(5) of the Capital Allowances Act 2001 reads, in terms, "The maximum allowance is £1,000,000". It applies to every business carrying on a qualifying activity, so a sole-trader landlord with a single commercial unit works to exactly the same £1 million cap as a large property company.

The point most stale guides miss is that this is the permanent cap, not a one-year figure for 2025/26. The allowance has a long history of temporary uplifts (it sat at £200,000 for several years, then ran through a sequence of short-term increases), but section 8 of the Finance (No. 2) Act 2023 fixed £1 million as the permanent maximum from 1 April 2023. So if you are reading this as the "AIA limit 2025/26", treat £1 million as a stable planning figure, not something due to lapse.

Two refinements matter in practice. First, the cap is per accounting period and is time-apportioned for periods that are not twelve months long: a nine-month period gives a 9/12 cap of £750,000, not the full £1 million. Second, the £1 million is not multiplied across a group: commonly controlled companies and group members share a single allowance under sections 51B to 51N of the Capital Allowances Act 2001. We keep that one sentence light here because the allocation and association rules deserve their own treatment, which is in our guide to the £1 million cap and association rules.

How does the AIA limit compare with 2024/25?

It is identical. The HMRC annual investment allowance limit for 2024 to 2025 was £1,000,000, and it remains £1,000,000 for 2025/26. Because £1 million has been the permanent cap since 1 April 2023, there is no step between the two tax years to plan around. The table below sets out the headline allowances for the two years side by side, with the statutory basis for each.

Allowance	2024/25	2025/26	Statutory basis
Annual investment allowance (cap)	£1,000,000 (permanent)	£1,000,000 (permanent)	CAA 2001 s.51A(5); F(No.2)A 2023 s.8
Main-pool writing-down allowance	18%	18% (falls to 14% from April 2026)	CAA 2001 s.56(1)
Special rate pool writing-down allowance	6%	6% (unchanged)	CAA 2001 s.104A, s.104D
Full expensing (companies, 100%)	Available	Available	CAA 2001 s.45S
Cars (AIA eligible?)	No	No	CAA 2001 general exclusions

The one change on the horizon is the main-pool writing-down rate, which drops from 18% to 14% from April 2026. That only affects expenditure above the £1 million cap that has rolled into the main pool, and it does not touch the AIA limit itself. We deal with the timing of that change below and link to the full transition timeline.

What qualifies for the annual investment allowance?

The AIA covers most plant and machinery used in a qualifying activity. For a property business that typically means:

• Heating, ventilation, air-conditioning, electrical and water systems in commercial buildings
• Lifts, escalators and moving walkways
• Kitchen and laundry equipment in qualifying serviced accommodation or HMO common areas
• Furniture and white goods, where the activity is a trade rather than a residential dwelling let
• Integral features, which are defined as special rate expenditure under section 104A of the Capital Allowances Act 2001 but can still take AIA up to the cap
• Electric vehicle charge points, which also have their own 100% first-year allowance under section 45EA, available until 31 March 2027 for corporation tax and 5 April 2027 for income tax (a period the Treasury may extend by regulations)

Two exclusions catch landlords out. Cars never qualify for AIA (they go into the writing-down pools instead), and expenditure on plant inside a dwelling-house is blocked entirely, which is the subject of the next section. The structure and fabric of a building also fall outside plant and machinery, so on a fit-out only the plant and integral features element qualifies, not the bricks and mortar.

Can landlords claim capital allowances on investment property?

This is the question that decides whether the £1 million cap is relevant to you at all, and it is where the cluster of "capital allowances on investment property in UK" searches usually go wrong. The starting position is restrictive: section 35 of the Capital Allowances Act 2001 blocks capital allowances on plant and machinery for use in a dwelling-house. A standard residential buy-to-let, let on an assured shorthold tenancy, is a dwelling-house, so the boiler, the fitted kitchen and the bathroom suite inside the let flat do not attract AIA. Residential landlords instead use replacement of domestic items relief for furniture and appliances.

The claim base for property AIA is therefore narrower than the headline £1 million suggests. It is available on:

• Commercial property let as a property business: qualifying plant and integral features within the building.
• The common parts of an HMO or block of flats: the shared elements of a multi-let building (a communal boiler, the lift, stair and corridor lighting) sit outside the individual dwelling-houses, so plant in those common parts can qualify even though plant inside each let unit does not.
• Former furnished holiday let pools: the FHL regime was abolished from 1 April 2025 for corporation tax and 6 April 2025 for income tax under the Finance Act 2025, so no new FHL plant qualifies, but pool balances built up before abolition continue to be written down within the ordinary property business.

Because the dwelling-house line and the trade-versus-investment question are genuinely fact-sensitive, this is one of the most common areas we are asked to review. The full four-axis analysis (qualifying activity, qualifying expenditure, the dwelling-house restriction and the integral-features split) sits in the capital allowances pillar, and the "who can actually claim it" angle is covered in our AIA for landlords guide.

Worked example: a 2025/26 commercial fit-out within the cap

Take a Leeds commercial-unit investor who, in their 2025/26 accounting period, spends £180,000 refitting a let office: new heating and ventilation, rewiring, a passenger lift and updated water systems. The structural building works do not qualify, but the heating, ventilation, electrical, water and lift elements are qualifying plant and integral features. Suppose £180,000 of the spend is the qualifying element.

Because that £180,000 is comfortably below the £1 million cap and the period is a full twelve months, the whole £180,000 can be claimed as AIA in 2025/26. It comes straight off taxable profit in the year, rather than being written down slowly. If the same plant had been installed inside a residential dwelling-house let on a standard tenancy, section 35 would have blocked the claim entirely, which is why identifying the nature of the let matters as much as identifying the plant.

What changes from 2026 (in brief)?

The 2025/26 snapshot would not be complete without flagging what shifts shortly afterwards, all of it now enacted by the Finance Act 2026 (which received Royal Assent on 18 March 2026), so this is current law rather than a Budget proposal:

• 1 January 2026: a new 40% first-year allowance for new and unused main-rate plant and machinery applies, under section 29 of the Finance Act 2026 (inserting section 45U into the Capital Allowances Act 2001 and adding the 40% rate to the section 52 table). It excludes cars, second-hand assets and certain overseas leasing, and unlike company full expensing it is not restricted by incorporation status.
• 1 April 2026 (corporation tax) and 6 April 2026 (income tax): the main-pool writing-down allowance falls from 18% to 14%, under section 28 of the Finance Act 2026 amending section 56(1) of the Capital Allowances Act 2001. The special rate pool stays at 6%.

None of this changes the £1 million AIA limit, which is the point of this 2025/26 page. The writing-down cut only bites on expenditure above the cap that has rolled into the main pool, and the 40% allowance is an alternative route for new plant rather than a replacement for AIA. Because it is a dated transition with straddling-period rules, we keep the full timeline in one place: our 2024/25 annual investment allowance guide carries the complete transition treatment, and our writing-down allowance rates guide sets out the new 14% main-pool rate in detail.

How AIA fits alongside the other allowances

AIA is one route among several, and choosing between them is usually a question of who you are and whether the asset is new:

• AIA: 100% relief up to £1 million, available on new and second-hand qualifying plant, for incorporated and unincorporated businesses alike. The default for most landlord-scale spend.
• The 40% first-year allowance (from 1 January 2026): new and unused main-rate plant only, not restricted by incorporation. A useful route for unincorporated landlords and for leasing, and for spend above the AIA cap. Because it requires new assets, it does not help with second-hand plant, where AIA on second-hand assets is the route instead.
• Full expensing: 100% relief on new and unused main-rate plant, but it is company-only (section 45S), so it is not open to individual landlords. We cover it in our full expensing guide; if you are weighing a company structure, our buy-to-let limited company guide sets out the wider picture.
• Writing-down allowances: the fallback for anything not relieved up front, at 18% (14% from April 2026) for the main pool and 6% for the special rate pool.

One planning note for unincorporated landlords. The value of an AIA deduction tracks your marginal rate on property income, so the same £1 of relief is worth more the higher your rate. From 2027/28 the separate property income rates of 22%, 42% and 47% take effect for England, Wales and Northern Ireland under sections 6 and 7 of the Finance Act 2026 (Scotland sets its own rates), which means a deduction claimed at the higher property rates is worth proportionately more then. Our property investment tax guide covers those rates in full.

How to claim AIA for 2025/26

The claim is made for the accounting period in which you incurred the expenditure (broadly, when the obligation to pay became unconditional), not when you pay or when the asset is first used. A company claims through its corporation tax return (the CT600 capital allowances computation); an individual or partnership claims through the self assessment return. Keep the underlying records, including contracts, invoices and a capital allowances analysis of any fit-out, so that the plant and integral features element is clearly identified and supportable if HMRC asks.

Key takeaways

• The annual investment allowance is £1,000,000 for 2025/26, unchanged from 2024/25, and it is the permanent cap (section 51A(5) CAA 2001; section 8 F(No.2)A 2023), not a temporary figure.
• The cap is per accounting period, time-apportioned for short periods, and shared across groups and commonly controlled companies.
• Section 35 blocks AIA on plant inside a residential dwelling-house, so most standard buy-to-lets cannot claim; the base is commercial property, HMO and block common parts, and former FHL pools.
• From 2026 the main-pool writing-down rate falls from 18% to 14% and a new 40% first-year allowance starts, but neither changes the 2025/26 £1 million AIA limit.

Sources

1. legislation.gov.uk: Capital Allowances Act 2001, section 51A (the £1,000,000 maximum allowance)
2. legislation.gov.uk: Capital Allowances Act 2001, section 56 (main-pool writing-down allowance, 14% as substituted by Finance Act 2026 s.28)
3. legislation.gov.uk: Finance Act 2026, section 29 (new 40% first-year allowance; inserts CAA 2001 s.45U)
4. legislation.gov.uk: Capital Allowances Act 2001, section 35 (dwelling-house restriction)
5. gov.uk: Claim capital allowances: Annual investment allowance - GOV.UK