Capital Allowances on Commercial Property: What Can You Claim?

When you buy a commercial property, the right capital allowances claim can shelter a meaningful slice of your rental or trading profit from tax for years. Unlike buy-to-let landlords, who run into the Section 24 restriction on mortgage interest relief and almost no capital allowances at all, commercial property investors can claim against the plant, the integral features and the structure of the building. The difficulty is not whether the allowances exist, it is securing them correctly at the point of purchase, where a missed election or a missing statement can lose the relief permanently.

This page is the commercial-property capital allowances hub. It covers what you can claim, the rates that apply from April 2026, and the buyer-side mechanics that decide whether you actually get the relief. Where a topic has its own deep dive, we summarise it here and link across. For the full all-property framework see the capital allowances pillar for property investors, and for commercial property tax more broadly (rates, reliefs and allowances together) see our commercial property tax guide for landlords.

The rates at a glance (from April 2026)

Here is the current position for commercial property capital allowances. Note carefully what changed in April 2026 and what did not: the plant and machinery main pool rate fell, but the special rate pool and the structures and buildings allowance were untouched.

Allowance	Rate	Notes	Authority
Main pool writing-down allowance	14% reducing balance	Cut from 18% for periods beginning on or after 1 Apr 2026 (CT) / 6 Apr 2026 (IT); straddling periods use a blended rate	CAA 2001 s.56; FA 2026 s.28
Special rate pool writing-down allowance	6% reducing balance	Unchanged. Integral features such as heating, electrics, lifts, cold water systems	CAA 2001 s.104D, s.33A
Annual Investment Allowance (AIA)	100% up to 1,000,000 pounds	Permanent. Most plant and machinery, including integral features. Cars excluded	CAA 2001 s.51A(5); F(No.2)A 2023 s.8
Full expensing (first-year allowance)	100%	Companies only, new and unused main-rate plant, permanent	CAA 2001 s.45S
New 40% first-year allowance	40%	New and unused main-rate plant, expenditure from 1 Jan 2026; the route for those not using full expensing	FA 2026 s.29; CAA 2001 s.45U
Structures and buildings allowance (SBA)	3% straight line over 33 and a third years	Unchanged. 3% since the uplift from 2%	CAA 2001 s.270AA; Finance Act 2020

One correction worth stating plainly, because it circulates as a myth: the SBA rate did not change to 2.5% over 40 years in April 2026. SBA is 3% over 33 and a third years and has been since 2020. The only April 2026 change was the main pool WDA dropping from 18% to 14%.

What capital allowances are, and why commercial beats residential

Capital allowances let you deduct the cost of certain capital assets from your taxable profit over time, rather than as a one-off revenue expense. They sit on the capital side of the revenue-versus-capital line: ordinary repairs and running costs are revenue deductions, while the cost of acquiring or improving the fabric and equipment of the building is capital, and capital allowances are the route to relief on the qualifying parts of it.

The reliefs reduce your taxable profit pound for pound. A 10,000 pound allowance removes 10,000 pounds from profit, which for a higher-rate income tax payer is worth 4,000 pounds and for a company at the main rate is worth 2,500 pounds. Over the life of a commercial building, the qualifying fixtures and structure can run into hundreds of thousands of pounds, so the cumulative effect is significant.

Residential property gets almost none of this. The dwelling-house restriction in CAA 2001 s.35 bars plant and machinery allowances for plant for use in a dwelling-house within a property business, and SBA is blocked for residential use by s.270CF. The furnished holiday lettings regime, which once let qualifying holiday lets access the wider plant and machinery base, was abolished from 6 April 2025 (income tax) and 1 April 2025 (corporation tax) by Finance Act 2025 Schedule 5. Commercial property is therefore the part of the property world where the full allowances suite is genuinely available, which is one reason investors weigh commercial acquisitions and company structures against residential buy-to-let.

The four-way split: what counts as plant

The first job on any commercial purchase is to divide the price into categories, because each gets a different treatment. The legislation works by exclusion and then carve-back:

• The building shell (excluded). CAA 2001 s.21 excludes expenditure on a building from plant and machinery. List A covers walls, floors, ceilings, doors, gates, windows, stairs, mains services, and the shafts that house lifts. This is the structure, not plant.
• Structures and works (excluded). CAA 2001 s.22 excludes structures in List B, such as roads, bridges and retaining walls, and works that alter land. These are not plant either, though some may qualify for SBA instead.
• Integral features (special rate pool, 6%). CAA 2001 s.33A lists five categories of integral feature: electrical and lighting systems, cold water systems, space or water heating and powered ventilation or air cooling, lifts and escalators, and external solar shading. These go in the special rate pool and are written down at 6%. For how the five categories are identified in practice, see our integral features capital allowances guide.
• Remaining plant (main pool, 14%). Everything that survives the s.21 and s.22 exclusions and is restored as plant by the List C carve-back in s.23, or is plant in its own right, goes in the main pool at 14% from April 2026. Examples in a commercial building include fitted kitchens in catering premises, sanitaryware, fire and security systems, and trade-specific equipment.

Worked example 1: apportioning a purchase

Suppose a company buys a small office building for 800,000 pounds. After a proper review, the price is apportioned as follows: 560,000 pounds to land and the building shell (no plant and machinery allowance, though some may carry SBA), 160,000 pounds to integral features such as heating, electrics and the lift (special rate pool at 6%), and 80,000 pounds to other qualifying plant such as fitted kitchen, fire and security systems (main pool at 14%). The 240,000 pounds of fixtures is the value the buyer wants to protect through the fixtures election described below. Without a valid election, none of that 240,000 pounds may be claimable.

Annual Investment Allowance: the 100% headline

The Annual Investment Allowance gives a 100% deduction in the year of spend for most qualifying plant and machinery, including integral features, up to a permanent cap of one million pounds. The cap was made permanent by Finance (No. 2) Act 2023 s.8 from 1 April 2023, so the older worry that it would fall back to 200,000 pounds no longer applies (CAA 2001 s.51A(5)).

Two points catch property investors out. First, related companies under common control share a single AIA between them (CAA 2001 s.51E and s.51G), so a group cannot multiply the one million pound cap across its SPVs. Second, cars are excluded from the AIA. For the full mechanics, see our Annual Investment Allowance guide.

Worked example 2: AIA in year one

Take the 80,000 pounds of main-pool plant and the 160,000 pounds of integral features from Example 1, a total of 240,000 pounds of qualifying fixtures (assuming the fixtures election is secured). All of it is well within the one million pound AIA cap, so the full 240,000 pounds can be deducted in year one. For a company at the 25% main rate that is worth 60,000 pounds of corporation tax, taken in a single year rather than spread over a decade or more of writing-down allowances.

Writing-down allowances after AIA

Where qualifying spend exceeds the AIA cap, or you choose not to use AIA, the balance is written down annually on the reducing balance. From April 2026 the rates are 14% for the main pool and 6% for the special rate pool. The 14% rate was substituted into CAA 2001 s.56 by Finance Act 2026 s.28 (down from 18%) for chargeable periods beginning on or after 1 April 2026 for corporation tax and 6 April 2026 for income tax. A period that straddles the start date uses a hybrid, time-apportioned rate between 18% and 14%. The special rate pool stays at 6% and was not reduced. For the detail, see our writing-down allowance rates guide.

Worked example 3: the reducing balance

Say 100,000 pounds of main-pool plant is written down rather than claimed as AIA. At 14% the year-one allowance is 14,000 pounds, leaving 86,000 pounds. Year two gives 12,040 pounds (14% of 86,000), leaving 73,960 pounds. Year three gives 10,354 pounds. Because it is a reducing balance, relief tapers and a long tail remains in the pool, which is exactly why most investors claim AIA or a first-year allowance on as much as possible up front.

First-year allowances: full expensing and the new 40% FYA

For new and unused plant, two faster-than-AIA routes exist, and which one applies depends on who you are.

• Full expensing (100%, companies only). CAA 2001 s.45S gives companies within the charge to corporation tax a 100% first-year allowance on new and unused main-rate plant, with no annual cap. It is permanent. It is not available to sole traders, partnerships or individual landlords. This is one of the structural reasons a property business is sometimes run through a company, alongside the wider points in our buy-to-let limited company guide.
• The new 40% first-year allowance. Finance Act 2026 s.29 introduced a 40% first-year allowance on new and unused main-rate plant and machinery, for expenditure incurred on or after 1 January 2026, with the qualifying conditions in CAA 2001 s.45U. It excludes cars and second-hand assets. It is not restricted to unincorporated businesses, but in practice it is the route for sole traders, partnerships and individual landlords (and for leasing), because a company will normally use 100% full expensing on the same plant instead.

The leasing and car exclusions in CAA 2001 s.46 still apply, and cars never qualify for either route. The only first-year allowance for cars is the 100% allowance for new, unused zero-emission cars under s.45D.

Structures and buildings allowance (SBA)

SBA gives relief on the construction cost of the building itself, the part that plant and machinery allowances cannot reach. The rate is 3% a year on a straight-line basis over an allowance period of 33 and a third years (CAA 2001 s.270AA). The 3% rate (up from the original 2%) was enacted by Finance Act 2020, with effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax. SBA did not change in April 2026; there is no 2.5% rate and no 40-year period.

To qualify, construction must have begun on or after 29 October 2018, the expenditure must be on construction, renovation or conversion (not on the land, which is excluded by s.270BG), and the first use after the expenditure must be non-residential. Two gates matter most for a buyer:

• The allowance statement (s.270IA). The qualifying expenditure is treated as nil unless an allowance statement is in place before the current owner first makes a claim (s.270IA(2)). The statement records the building, the earliest construction contract date, the qualifying expenditure, and the date of first non-residential use. When you buy a building part-way through its allowance period, you inherit the remaining period but you cannot claim without the seller's allowance statement, so obtaining it is a due-diligence item.
• The residential exclusion (s.270CF). Any part used as a dwelling-house is not in qualifying use, even if it is also used for other purposes (s.270CF(5)). For a shop with a flat above, only the shop construction cost can carry SBA; the flat is excluded entirely.

SBA is not a free allowance. There is no balancing event on disposal, the buyer inherits the remaining period, and the cumulative SBA you have claimed is added back into your capital gains computation on sale under TCGA 1992 s.37B, increasing the chargeable gain. For the full mechanics, see our structures and buildings allowance claim guide.

Buying a commercial property: the fixtures election

This is the section most general guides leave out, and it is the part that most often goes wrong. When you buy a second-hand commercial building, the plant and machinery embedded in it (the fixtures and integral features) does not automatically transfer its allowances to you. Two statutory gates stand in the way, and failing either is fatal.

Gate one: the pooling requirement (s.187A)

A past owner who was entitled to claim must have pooled the fixture expenditure, meaning they brought it into a capital allowances pool by claiming AIA, writing-down allowances or a first-year allowance. If at any point in the building's history an entitled owner failed to pool, the buyer is permanently barred from claiming on those fixtures, and no section 198 election can rescue them. This is why a historic pooling audit, checking what every prior owner did, belongs in your due diligence on any second-hand commercial purchase.

Gate two: the fixed-value requirement (s.187A)

Once the pooling gate is passed, the value of the fixtures must be fixed within two years of the purchase. The normal route is a joint section 198 election (CAA 2001 s.198), a written agreement signed by buyer and seller that states the amount allocated to the fixtures, identifies the plant and the property, and gives both parties' tax references. That figure becomes the buyer's qualifying expenditure and the seller's disposal value at the same time. If the value is not fixed in time, s.187A treats the buyer's expenditure on those fixtures as nil. The time limit is two years from the date you acquire the interest (s.201(1)). Where a seller refuses to elect, the buyer can apply to the First-tier Tribunal for a determination, but in practice the negotiated election is the route used.

Worked example 4: the election negotiation

A buyer acquires a commercial unit whose fixtures the seller had pooled at an original cost of 200,000 pounds. The maximum the parties can elect is the lower of that original expenditure and the actual sale price (s.198(3)). The seller wants a low figure (a low disposal value preserves their pool and avoids a balancing charge); the buyer wants a high figure (to maximise their own future allowances). A 1 pound election is legally valid but hands the allowances back to the exchequer; a market-value election protects the buyer's claim but may create a balancing charge for the seller. The right number is negotiated, and the obligation to sign the election within the two-year window should be written into the heads of terms, not left to chance after completion.

For the full buyer-side playbook, including the section 199 lease-grant parallel and item-level election drafting, see our section 198 fixtures election purchase mechanics guide.

Selling: balancing charges and disposal values

When you sell a commercial property, the fixtures are disposed of for capital allowances purposes. The disposal value is set by the section 198 election agreed with your buyer, or, in its absence, by the fixtures table in CAA 2001 s.196. That value is brought into your pool. Under the entitlement test in s.55, if the total disposal receipts in a pool exceed the available qualifying expenditure left in it, the excess is a balancing charge, a taxable receipt that recovers allowances you previously claimed. If the pool balance is higher than the disposal value, you instead get a balancing allowance.

SBA behaves differently on disposal. There is no balancing event; the new owner inherits the remaining allowance period and continues writing down on the same basis. Instead, the cumulative SBA you claimed is added to your disposal proceeds for capital gains purposes under TCGA 1992 s.37B, so the relief is effectively recaptured through a larger chargeable gain rather than through a capital allowances balancing charge.

Commercial versus residential: the dividing line

The split between commercial and residential is the gateway to almost everything above. The dwelling-house restriction in CAA 2001 s.35 bars plant and machinery allowances for plant in a dwelling-house, and SBA is blocked for residential use under s.270CF. For a mixed-use building, only the commercial portion qualifies, and for SBA the dwelling part is excluded entirely even where it shares uses (s.270CF(5)). The narrow exception is plant in the common parts of a multi-let building, a communal boiler, lift or lighting in a block of flats, which can still qualify because the common parts are not themselves a dwelling-house. If you are weighing a beginner-level overview of allowances across all property types, our capital allowances on property primer covers the residential and general position.

How to claim, records, and common mistakes

The practical sequence on a commercial purchase is: identify the qualifying assets and apportion the price; run the pooling audit to confirm the s.187A gate is passed; agree and sign the section 198 election within two years; obtain the seller's SBA allowance statement; claim AIA or a first-year allowance on as much as possible, then write down the balance; and keep the records that support every figure. The genuine pitfalls, in order of how often they cause permanent loss, are:

• Missing the two-year fixtures deadline. The election is agreed in principle in the heads of terms, then never executed before the two-year window closes. The fixtures allowances are lost for good.
• No SBA allowance statement. Without the statement the qualifying expenditure is nil (s.270IA(2)); a buyer who never obtains the seller's statement cannot claim.
• Failing the pooling audit. A prior owner never pooled the fixtures, so the s.187A gate fails and the fixtures are permanently stranded, regardless of any election you sign.
• Mixing the pools. Integral features written down in the main pool at 14% instead of the special rate pool at 6%, or vice versa, produces the wrong allowances and an enquiry risk.

For a wider view of how capital allowances fit with corporation tax, disposals and your overall structure, a specialist property accountant can integrate the allowances with the rest of your tax position rather than treating them in isolation.