Capital allowances on commercial property offer significant tax advantages that residential landlords cannot access. Unlike buy-to-let properties where Section 24 restrictions limit mortgage interest relief, commercial property investors can claim capital allowances to reduce their taxable profits substantially.
This guide covers what capital allowances you can claim on commercial property, how much you can deduct, and the practical steps to maximise these valuable tax reliefs.
What Are Capital Allowances on Commercial Property?
Capital allowances let you deduct the cost of certain assets from your taxable profits over several years, rather than claiming the full cost when you buy the property. For commercial property, there are two main types:
- Plant and machinery allowances - for equipment and fixtures integral to the building
- Structures and buildings allowance - for the building structure itself
These allowances reduce your corporation tax (if you own through a company) or income tax (if you own personally) pound-for-pound. A £10,000 capital allowance claim saves £2,500 in tax for a higher-rate taxpayer or £1,900-£2,500 for a company.
Commercial property enjoys much more generous capital allowances than residential property, where only very limited plant and machinery allowances apply to landlords.
Plant and Machinery Allowances: The Main Opportunity
Plant and machinery allowances typically offer the biggest tax savings on commercial property. You can claim allowances on equipment and fixtures that are integral to your business operations.
What Qualifies as Plant and Machinery?
HMRC defines plant and machinery broadly for commercial property. Qualifying items include:
- Heating, ventilation and air conditioning systems
- Electrical systems - wiring, lighting, power distribution
- Plumbing and water systems - pipes, boilers, water tanks
- Lifts and escalators
- Fire safety systems - alarms, sprinklers, emergency lighting
- Security systems - CCTV, access controls, burglar alarms
- Kitchen equipment in commercial premises
- Fitted furniture that's integral to the building's function
The key test is whether the item has a business function beyond just being part of the building structure. A standard office radiator qualifies, but decorative wall panels typically don't.
Annual Investment Allowance (AIA)
You can claim 100% of qualifying plant and machinery costs in the year you incur them, up to the Annual Investment Allowance limit of £1 million (for the 2026/27 tax year).
For example, if you buy a commercial property for £500,000 and the plant and machinery is valued at £75,000, you can deduct the full £75,000 against your rental profits in year one. This saves £15,000 in tax for a higher-rate taxpayer.
Writing Down Allowances
If your plant and machinery costs exceed the AIA limit, or you choose not to claim AIA, you can claim writing down allowances at 18% per year on the reducing balance.
Structures and Buildings Allowance (SBA)
The structures and buildings allowance lets you claim 3% of qualifying construction or renovation costs each year for 33⅓ years (changing to 2.5% over 40 years from April 2026).
What Qualifies for SBA?
SBA applies to:
- New commercial buildings - offices, shops, warehouses, factories
- Conversions of existing buildings to commercial use
- Renovations and extensions where you incur construction costs
- Integral features that don't qualify as plant and machinery
The building must be non-residential and in qualifying use. You can claim SBA whether you own the property personally or through a company.
SBA Restrictions
You cannot claim SBA on:
- Land costs - only the building and construction work
- Items qualifying for plant and machinery allowances
- Residential buildings (houses, flats, hotels)
- Buildings not in qualifying use
For mixed-use buildings, you can claim SBA on the commercial portion only.
How to Identify and Value Allowances
Getting capital allowances right requires identifying what qualifies and establishing accurate values. This often involves specialist knowledge that goes beyond standard property accounting.
Capital Allowances Surveys
For significant commercial property purchases, a capital allowances survey by a specialist surveyor identifies qualifying assets and establishes their values. These surveys typically cost £2,000-£5,000 but can identify allowances worth £50,000-£200,000 or more.
The surveyor produces a detailed report breaking down:
- Plant and machinery items and their values
- Structures and buildings allowance qualifying costs
- Items that don't qualify for any allowances
- Supporting evidence for HMRC if needed
Pooling and Records
You must maintain separate pools for different types of assets:
- Main pool - standard plant and machinery (18% writing down allowance)
- Special rate pool - integral features like heating systems (6% writing down allowance)
- AIA pool - items where you claim 100% first-year relief
Good records are essential. HMRC can challenge allowances claims, particularly on higher-value properties.
Commercial vs Residential: Key Differences
The capital allowances treatment differs significantly between commercial and residential property:
- Commercial property: Full plant and machinery allowances plus SBA available
- Residential property: Very limited allowances, mainly restricted to landlord's furniture and equipment in common areas
- Mixed-use buildings: Can claim allowances on the commercial portion
This is one reason why some property investors prefer commercial property or consider incorporating their property business to access different tax treatments.
Claiming Capital Allowances: Practical Steps
To claim capital allowances on commercial property:
- Identify qualifying assets when you buy the property
- Obtain professional valuations for significant purchases
- Keep detailed records of all costs and valuations
- Claim allowances on your tax return or company accounts
- Maintain ongoing records of additions and disposals
You typically have two years from the end of the accounting period to make or amend capital allowances claims, though it's best to claim them promptly.
When You Sell the Property
When you dispose of commercial property, you may face a "balancing charge" if the sale proceeds exceed the remaining pool value of assets. This effectively recovers allowances you've claimed if the assets haven't depreciated as much as expected.
Alternatively, you may get a "balancing allowance" if you sell for less than the pool value, giving you additional tax relief.
Common Mistakes to Avoid
Property investors often make these capital allowances errors:
- Missing the claim deadline - you must claim within specific time limits
- Incorrect valuations - over-claiming can trigger HMRC investigations
- Poor record-keeping - you need evidence to support your claims
- Mixing pools incorrectly - different assets go in different pools with different rates
- Forgetting about disposals - you must account for assets when you sell
Professional Advice and Specialist Support
Capital allowances on commercial property can be complex, particularly for higher-value properties or portfolios. Professional property accountants can help you:
- Identify all qualifying allowances
- Obtain appropriate valuations and surveys
- Maintain compliant records and computations
- Integrate allowances with your overall tax strategy
- Handle HMRC enquiries if they arise
The tax savings often exceed the professional fees, particularly on substantial commercial property investments.
For detailed guidance on your specific commercial property situation, consider getting specialist advice. The combination of capital allowances, corporation tax rates, and commercial property rules can create significant tax planning opportunities that generic advice cannot address.