AIA Allowance for UK Property Investors: Which Capital Allowance to Claim, and in What Order

AIA and the FA 2026 allowance menu: which allowance, in what order

The AIA, the Annual Investment Allowance, gives a 100% deduction for qualifying plant and machinery in the year you buy it. The headline figure that matters first: the AIA limit is £1,000,000 a year and it is permanent, fixed at that level since 1 April 2023 by section 51A(5) of the Capital Allowances Act 2001, as substituted by the Finance (No. 2) Act 2023 ^[1]. If you have read elsewhere that the £1 million is temporary, "confirmed until 31 March 2026", or about to revert to £200,000, that guidance is stale. There is no cliff edge to bring spending forward against.

What has changed is the rest of the menu around the AIA. If you hold commercial or mixed-use property, the AIA is now only one of four ways to write off capital spend, and the question that earns its keep in 2026 is not "what is the AIA" but "which allowance do I claim, and in what order". If you only want the plain definition, the annual investment allowance UK guide covers it. What follows is the applied decision: how you sequence full expensing, the new 40% first-year allowance, the AIA, and writing-down allowances.

That sequencing sits inside the wider CAA 2001 framework, which the capital allowances guide for property investors sets out in full. Here it comes down to the four-route choice you actually face on a commercial fit-out or purchase.

The four routes at a glance

Where an item qualifies for more than one allowance you choose which to use, so the routes below are options to allocate across, not a queue you are forced down. No annual investment allowance calculator will make this call for you, because it turns on who you are and what you bought. What each route gives, who can claim it, and when each one wins:

Route	Statute	Relief	Who can claim	New/unused only?	Cap	Best when
Full expensing	CAA 2001 s.45S	100% in year	Companies only	Yes	None	Company, new main-rate plant, wants full relief now
50% special-rate FYA	CAA 2001 s.45S (50% rate via s.52 table)	50% year 1, then 6%	Companies only	Yes	None	Company, new integral features
40% first-year allowance	FA 2026 s.29 / CAA 2001 s.45U	40% year 1, then 14%	Any business	Yes	None	Unincorporated landlord, or plant bought to lease out
AIA	CAA 2001 s.51A	100% in year	Any business	No (second-hand allowed)	£1,000,000 / year	Second-hand plant, or any spend up to the cap
Main-pool WDA	CAA 2001 s.56	14% reducing balance	Any business	n/a	n/a	Spend above the cap or not first-year eligible
Special-rate WDA	CAA 2001 s.104D	6% reducing balance	Any business	n/a	n/a	Integral features above the cap or not first-year eligible

Two things drive the whole decision. First, only companies can use full expensing and the 50% special-rate first-year allowance, so an unincorporated landlord is working with the AIA, the 40% allowance and the pools. Second, full expensing and the 40% allowance are restricted to new and unused assets, while the AIA also covers second-hand plant. Those two distinctions decide almost every allocation question below.

The AIA itself: £1m permanent, applied to property

The AIA gives a 100% deduction for qualifying plant and machinery in the chargeable period the expenditure is incurred, up to the annual £1 million. It is available to any business carrying on a qualifying activity under section 15 of the Capital Allowances Act 2001, which includes a UK or overseas property business and a trade. So a property company, a partnership and a sole trader landlord can all claim it on commercial or non-dwelling plant. (The furnished holiday lettings category that used to sit alongside these was abolished from 1 April 2025 for corporation tax and 6 April 2025 for income tax; existing pools are written down under the rules in our post-April-2025 FHL capital allowances guide.)

Spend above the £1 million does not vanish: it rolls into the main pool, written down at 14%, or the special-rate pool at 6%, and is relieved over future years. AIA is claimed for the period the expenditure is incurred, and on a hire-purchase contract you can claim once the asset is brought into use even though instalments continue.

One boundary catches people out: where companies are related or under common control, they share a single £1 million between them under sections 51B to 51G, not one each. For the associated-company allocation and the order in which a group uses its shared cap, see the guide on the £1m AIA cap and association rules.

What plant actually qualifies on commercial and mixed-use property

On a commercial fit-out the real work is separating the building from the plant inside it. The Capital Allowances Act draws three lines:

• The building shell (walls, floors, roofs, doors, mains services) is excluded by section 21 (List A). No plant and machinery allowance.
• Structures and assets like car parks, bridges and hard standing are excluded by section 22 (List B), though some may attract the separate 3% structures and buildings allowance.
• Integral features under section 33A are special-rate plant: electrical and lighting systems, cold water systems, space and water heating, ventilation, air cooling and air purification systems, lifts, escalators and moving walkways, and external solar shading. These qualify for AIA, but if relieved through the pool they sit in the 6% special-rate pool.

Main-rate plant, the loose and functional equipment a List C carve-back restores to qualifying status, includes things like demountable partitioning, signage, fitted kitchen equipment in a commercial unit, machinery, and standalone fixtures and fittings. Getting the split right between main-rate plant, special-rate integral features and the excluded shell is what determines how much relief you can front-load. For the full commercial-property analysis of what can and cannot be claimed, see our guide on capital allowances on commercial property.

The dwelling-house bar: why standard residential buy-to-let is blocked

This is where the common claim that "you can put a new boiler or solar panels in your buy-to-let and claim the allowance" goes wrong. Section 35 of the Capital Allowances Act 2001 says, in terms, that expenditure is not qualifying "if it is incurred in providing plant or machinery for use in a dwelling-house" ^[2]. A heating system, security system or solar installation inside a let flat or house is therefore blocked, and that block applies whichever route you try, AIA, the 40% first-year allowance or writing-down allowances. So the answer to whether there are capital allowances on a standard residential investment property is, for the dwelling itself, no.

The two genuine carve-outs are worth knowing precisely. First, the common parts of a multi-let building, a communal boiler serving several flats, a shared lift, stair and landing lighting, are not "in a dwelling-house" and can qualify. Second, the non-dwelling parts of a mixed-use building, the shop or office below the flats, are commercial and qualify on the normal rules. The mechanics of the common-parts claim in an HMO or block are set out in our guide on HMO common-parts capital allowances and section 35, and the broader question of who can actually claim is in our AIA for landlords guide.

The new 40% first-year allowance: the route that changed the decision

Finance Act 2026 received Royal Assent on 18 March 2026. Section 29 inserted section 45U into the Capital Allowances Act 2001 and added a 40% rate to the first-year allowance table in section 52 ^[3]. This is enacted law, not a proposal, and it is the single biggest change to the allowance menu since full expensing arrived in 2023.

The 40% first-year allowance gives a 40% deduction in year one on new and unused main-rate plant and machinery incurred on or after 1 January 2026, with the remaining 60% added to the main pool and written down at 14% ^[4]. The point that matters most: section 45U contains no incorporation test, so it is not "companies only" and it is not "unincorporated only". Any business can use it. It excludes cars, second-hand or used assets, and assets bought for leasing overseas, and special-rate expenditure goes down its own route rather than the 40%.

Why it changed the decision: before FA 2026, if you were unincorporated with new main-rate plant above the AIA cap, you could only write the excess down slowly. Now you get 40% in year one on that excess. And for plant bought specifically to lease out, where full expensing is unavailable, the 40% allowance is the front-loaded route a company would otherwise lack. For how it sits against the company-only routes, see the guide on full expensing and the 50% FYA for commercial property SPVs.

Full expensing vs the 40% FYA vs AIA: the allocation order

The order is driven by two things: whether you are a company, and whether the assets are new or second-hand.

For a company with new main-rate plant, full expensing usually comes first because it is 100% with no cap and no annual limit to ration. There is no reason to spend AIA headroom on new main-rate plant a company can fully expense. So the company reserves its £1 million of AIA for the things full expensing cannot reach: second-hand plant and special-rate integral features (full expensing gives integral features only 50% in year one, the special-rate rate set for section 45S expenditure by the section 52 first-year-allowance rate table). The 40% first-year allowance then mops up any plant that is neither full-expensable nor better placed under AIA, typically assets bought to lease. Whatever remains is written down in the main pool (14%) or special-rate pool (6%).

For an unincorporated landlord or partnership, there is no full expensing. The toolkit is the AIA, the 40% first-year allowance and the pools. The usual order is AIA first on the items that benefit most, especially second-hand plant and special-rate features (because the 40% allowance does not reach second-hand or special-rate spend), then the 40% allowance on new main-rate plant beyond the cap, then writing-down allowances on the rest.

The new-versus-used line is the one to keep in front of you: full expensing and the 40% allowance both require new and unused, whereas AIA does not. Where you are buying second-hand plant, or fixtures inside an existing building, AIA (or the pools) is the only front-loading route, which is exactly the scenario in our guide on claiming AIA on second-hand assets.

The FA 2026 WDA cut and what it means for spend above the cap

The genuine timing pressure in 2026 is not an AIA cliff that does not exist. It is the writing-down allowance cut. Section 28 of Finance Act 2026 substituted 14% for 18% in section 56(1), so the main-pool WDA is now 14% for chargeable periods beginning on or after 1 April 2026 (corporation tax) and 6 April 2026 (income tax) ^[5]. Periods that straddle the start date use a hybrid time-apportioned rate. The special-rate pool is unchanged at 6% under section 104D; the occasional claim that the special rate falls to 4% is wrong.

The slower 14% pool makes front-loaded reliefs more valuable than they used to be, because the alternative, leaving spend in the pool, now unwinds even more slowly. That is the real reason to be deliberate about allocation, not a phantom deadline on the £1 million. The current rates and the law behind each are below.

Pool or route	Rate	Statute	Effective from
AIA	£1,000,000 (100% in year)	CAA 2001 s.51A(5)	Permanent, 1 Apr 2023
40% first-year allowance	40% year 1	FA 2026 s.29 / CAA 2001 s.45U	1 Jan 2026
Full expensing	100% (companies)	CAA 2001 s.45S	1 Apr 2023
Main-pool WDA	14%	CAA 2001 s.56 (FA 2026 s.28)	1 Apr 2026 CT / 6 Apr 2026 IT
Special-rate WDA	6%	CAA 2001 s.104D	Unchanged
Structures and buildings allowance	3%	CAA 2001 s.270AA	1 Apr / 6 Apr 2020

Worked example 1: a company fitting out a commercial unit

A property company refurbishes a retail unit and incurs £300,000 of qualifying spend in the year: £180,000 of new main-rate plant and machinery, £90,000 of new electrical and heating integral features (special-rate), and £30,000 of second-hand fixtures bought with adjacent space.

The efficient allocation: full expensing takes the £180,000 of new main-rate plant at 100%, with no AIA used at all. The £90,000 of new integral features goes to the 50% special-rate first-year allowance, giving £45,000 now, with the £45,000 balance into the special-rate pool at 6%. The £30,000 of second-hand fixtures cannot be full-expensed, so AIA covers it at 100%. Total first-year deduction: £180,000 + £45,000 + £30,000 = £255,000. At a 25% main rate of corporation tax that is around £63,750 of tax relief in year one, with the special-rate residue relieved over future years. The company has used almost no AIA headroom, leaving the £1 million free for any other spend in the period.

Worked example 2: an unincorporated landlord with a mixed-use building

An individual owns a building with two flats above a shop. In the year she spends £120,000: £70,000 on new main-rate plant in the shop, £25,000 on a communal heating system serving the common stairwell, and £20,000 replacing the boilers inside the two flats.

She has no full expensing because she is not a company. The £70,000 of new main-rate shop plant can take AIA at 100% (or the 40% first-year allowance if she wanted to preserve AIA for something else; AIA wins here because it is also 100%). The £25,000 communal heating is in the common parts, not "in a dwelling-house", so it qualifies as a special-rate integral feature and AIA covers it. The £20,000 of boilers inside the flats is blocked entirely by section 35, the dwelling-house bar, so it attracts no plant and machinery allowance at all. Her qualifying deduction is £70,000 + £25,000 = £95,000; the £20,000 of in-dwelling plant gives nothing. The section 35 line turns on location: plant inside a dwelling is blocked, the same plant in the common or commercial parts qualifies.

Worked example 3: a short accounting period and the £1m pro-rating

A property company changes its year end and has a 9-month chargeable period. Its AIA is not the full £1 million for that period: it is pro-rated to 9/12 × £1,000,000 = £750,000. If it spent £820,000 of AIA-eligible plant in those nine months, £750,000 takes AIA and the remaining £70,000 falls into the relevant pool (or the 40% first-year allowance if it is new main-rate plant). That is how AIA works across a company's different accounting periods: the cap follows the length of the chargeable period, and where companies are related the single shared £1 million under section 51E is itself apportioned. For the group-sharing mechanics, see the £1m cap and association rules guide.

Buying a commercial property with fixtures: the s.198 election trap

When you buy a second-hand commercial building, the fixtures already in it, the wiring, heating, lifts and sanitary ware, can be worth a substantial allowances claim. But two conditions decide whether you can claim anything at all, and getting them wrong loses the relief permanently.

First, the pooling requirement in section 187A(4): the past owner must have allocated the fixtures expenditure to a pool, or claimed a first-year allowance on it, before the sale. If they never pooled it, your claim is blocked. Second, where the seller did pool, you normally need a joint section 198 election fixing the value transferred on the fixtures, and that election must be made within 2 years of the date you acquire the interest under section 201(1). Miss the pooling requirement or the 2-year deadline and section 187A(3) treats your fixtures expenditure as nil. That is a permanent loss, not a deferral, so the fixtures position needs to be settled as part of the purchase, not left until the first tax return.

How to claim, and getting the allocation right

You claim capital allowances on the computation that supports your return: the capital allowances section of a Self Assessment return for a sole trader or partnership, and the CT600 computation for a company. You identify the qualifying expenditure, decide how much of each allowance to claim, and carry any unrelieved balance into the pools. Where an item qualifies for more than one allowance, you choose, which is the whole point of thinking about the order in advance rather than defaulting everything into one route.

The discipline is straightforward to state and easy to get wrong in practice: separate the building from the plant, apply the section 35 dwelling-house bar honestly, then allocate full expensing, the 40% first-year allowance and the AIA in the order that front-loads the most relief for your entity and your mix of new versus second-hand spend. If you hold property through a company, the structural context, including why full expensing is company-only, is set out in our buy-to-let limited company guide.

Sources

1. legislation.gov.uk: Capital Allowances Act 2001, section 51A (maximum allowance £1,000,000, substituted by Finance (No. 2) Act 2023)
2. legislation.gov.uk: Capital Allowances Act 2001, section 35 (plant or machinery for use in a dwelling-house)
3. legislation.gov.uk: Finance Act 2026, section 29 (40% first-year allowance, inserting CAA 2001 s.45U)
4. gov.uk: Claim capital allowances: Annual investment allowance - GOV.UK
5. legislation.gov.uk: Capital Allowances Act 2001, section 56 (main-pool writing-down allowance 14%, substituted by Finance Act 2026 s.28)