Capital allowances are a form of tax relief that lets you deduct the cost of certain assets from your taxable profits. For UK landlords, they apply mainly to fixtures and equipment within a rental property. Unlike repairs or maintenance, which are revenue expenses, capital allowances cover the capital cost of items that have a useful life beyond the current tax year.

This article walks through a clear capital allowances example so you can see how the relief works in practice. We cover what qualifies, what does not, and the key rules for different property types. If you own commercial property, furnished holiday lets (before the regime was abolished), or mixed-use buildings, this is directly relevant to you.

What Are Capital Allowances?

Capital allowances let you write off the cost of certain capital assets against your taxable rental income. They are not the same as claiming repairs or running costs. Instead, they apply to items that form part of the building or are integral to its function.

The main types of capital allowances relevant to landlords are:

  • Plant and machinery allowances, the most common type, covering fixtures like boilers, lifts, air conditioning, and electrical systems.
  • Integral features allowances, covering items like lifts, escalators, and heating systems that are part of the building fabric.
  • Fixtures, items that are physically attached to the building, such as fitted kitchens, bathroom suites, and lighting.

For residential landlords, capital allowances are generally not available on standard buy-to-let properties. The rules changed in 2016, and most residential landlords now claim replacement of domestic items relief instead. However, commercial landlords and those with furnished holiday lets (before April 2025) can still claim.

Capital Allowances Example: Commercial Property

Let us take a concrete example. Sarah owns a small office building in Manchester that she lets to a local business. She spends £50,000 on a new heating system, £15,000 on lighting, and £10,000 on a new lift. These are capital assets, not repairs.

Sarah can claim plant and machinery allowances on these costs. Under the Annual Investment Allowance (AIA), she can deduct 100% of the cost in the year of purchase, up to £1 million. So in the 2025/26 tax year, she claims £75,000 against her rental profits. This reduces her taxable income significantly.

If Sarah's rental profit before the claim is £100,000, the capital allowances reduce it to £25,000. At the higher rate of 40% income tax, she saves £30,000 in tax. That is a substantial benefit.

Note that the AIA applies to most plant and machinery but not to cars. For integral features, the rate is 6% per year on a reducing balance basis, unless you elect to use the AIA.

Capital Allowances Example: Furnished Holiday Let (Pre-Abolition)

Before the Furnished Holiday Lettings (FHL) regime was abolished from April 2025, landlords could claim capital allowances on furniture, fixtures, and equipment in FHL properties. This was a significant advantage over standard residential lets.

Consider James, who owned a holiday cottage in the Lake District. He spent £8,000 on a new kitchen, £3,000 on beds and sofas, and £2,000 on a washing machine and tumble dryer. Under the FHL rules, he could claim plant and machinery allowances on all of these items.

Using the AIA, James deducted the full £13,000 in the year of purchase. His rental profit of £20,000 dropped to £7,000, saving him £2,600 in tax at the basic rate. This was a straightforward way to reduce his tax bill.

Since April 2025, FHL properties are treated as standard residential lets. Capital allowances on furniture are no longer available. Landlords in this position should speak to a specialist about transitional rules and alternative reliefs.

Capital Allowances Example: Mixed-Use Property

Mixed-use properties combine residential and commercial elements. A common example is a shop with a flat above. The rules here are split: the commercial part can attract capital allowances, while the residential part generally cannot.

Take a property in Birmingham where the ground floor is a retail unit and the first floor is a residential flat. The landlord installs a new boiler that serves both parts. The cost is £6,000. HMRC allows you to apportion the cost based on floor area or usage.

If the commercial unit occupies 60% of the building, you can claim capital allowances on £3,600 (60% of £6,000). The remaining £2,400 relates to the residential part and is not eligible. You would instead claim replacement of domestic items relief on that portion if it covers a qualifying item.

This apportionment can be complex. It is often worth getting a property accountant to prepare the capital allowances schedule and ensure the split is HMRC-compliant.

What Does Not Qualify for Capital Allowances?

Not every capital cost qualifies. The following items are specifically excluded:

  • Land and buildings (the structure itself)
  • Repairs and maintenance (these are revenue expenses)
  • Furniture in standard residential lets (use replacement relief instead)
  • Cars used for personal purposes (restricted rules apply)
  • Assets used partly for non-business purposes (apportionment needed)

If you are unsure whether an item qualifies, check the HMRC guidance or ask your accountant. The rules are detailed, and getting it wrong can lead to HMRC enquiries.

How to Claim Capital Allowances

Claiming capital allowances is done through your self-assessment tax return. You list the qualifying expenditure in the capital allowances section. If you use the AIA, you enter the full cost in the year of purchase.

For properties you already own, you may be able to claim capital allowances on past expenditure if you have not already done so. This is known as a "capital allowances review" and can uncover significant relief. However, you cannot claim on items you have already claimed as repairs or revenue expenses.

If you are buying a commercial property, you should ask the seller to provide a capital allowances statement. This lists the value of fixtures and equipment in the building. Without it, you may lose the right to claim on those items. This is a key part of due diligence when purchasing.

Capital Allowances and Incorporation

If you hold your property in a limited company, the rules are similar but the rates differ. Companies pay corporation tax, not income tax. The AIA still applies, and the rates for plant and machinery are the same.

However, companies can also claim capital allowances on assets used in the business, including cars and equipment, subject to restrictions. If you are considering incorporating your portfolio, it is worth reviewing the capital allowances position as part of the process. Our incorporation guide covers this in more detail.

For landlords with large portfolios, the tax savings from capital allowances can be significant. A thorough review of your properties could reveal thousands of pounds in unclaimed relief.

Common Mistakes Landlords Make

Several errors crop up regularly when landlords try to claim capital allowances:

  • Claiming on residential fixtures, standard residential lets do not qualify for plant and machinery allowances on fixtures. Use replacement relief instead.
  • Not apportioning mixed-use costs, if a boiler serves both commercial and residential parts, you must split the claim.
  • Ignoring past expenditure, you can go back and claim on qualifying items from previous years, but only if you have not already claimed them as revenue.
  • Forgetting the AIA cap, the £1 million AIA limit applies per business, not per property. If you have multiple properties, you cannot claim £1 million on each.

A good property accountant will help you avoid these pitfalls and maximise your claim.

Frequently Asked Questions

Below are answers to common questions landlords ask about capital allowances.