Capital allowances are easiest to understand in numbers, so every section below is a concrete computation showing how the relief actually lands on your tax bill. Quote the writing-down allowance at the old 18%, miss a section 198 election deadline, or treat the £1 million Annual Investment Allowance as if you get one per property, and you can lose real relief permanently. The figures here reflect the post-Finance-Act-2026 position, verified against legislation.gov.uk on 2 June 2026.
A capital allowance writes off the cost of qualifying plant and machinery against your taxable profits over time. It is different from a repair, which is a revenue deduction in the year you spend it. The capital-versus-revenue line is also where property improvements sit: improving or upgrading an asset is capital, and whether that capital spend attracts capital allowances depends on what it buys, plant and machinery yes, the building structure no. Capital allowances cover assets with a lasting function: heating and electrical systems, lifts, fitted equipment and the integral features of a commercial building. For the qualification rules rather than worked numbers (what qualifies and why dwellings are barred), see capital allowances on property and the full CAA 2001 decision framework.
Capital allowances rates and limits at a glance (2026/27)
Every worked example below uses these figures, and every figure is anchored to its statute.
| Allowance or pool | Rate or limit | Statutory basis |
|---|---|---|
| Main pool writing-down allowance | 14% reducing balance (cut from 18%) | CAA 2001 s.56; substituted by FA 2026 s.28, from Apr 2026 |
| Special-rate pool (integral features) WDA | 6% reducing balance (unchanged) | CAA 2001 s.104D; integral features s.33A |
| Annual Investment Allowance (AIA) | 100% up to £1,000,000, permanent | CAA 2001 s.51A(5); permanent from 1 Apr 2023, F(No.2)A 2023 s.8 |
| Full expensing (companies only) | 100% first-year allowance, new and unused | CAA 2001 s.45S, from 1 Apr 2023 |
| New 40% first-year allowance | 40% first-year allowance, new and unused main-rate plant | CAA 2001 s.45U (qualifying expenditure, inserted by FA 2026 s.29); 40% rate set by FA 2026 s.29 in the CAA 2001 s.52 table, from 1 Jan 2026 |
| Structures and Buildings Allowance (SBA) | 3% straight line on the building structure | CAA 2001 s.270AA, 29 Oct 2018 gate |
Three points carry most of the misunderstanding. First, the main-pool writing-down allowance is now 14%, not 18%: Finance Act 2026 section 28 substitutes 14% into CAA 2001 section 56, with effect for chargeable periods beginning on or after 1 April 2026 (corporation tax) and 6 April 2026 (income tax), and a period straddling that date uses a hybrid time-apportioned rate. Second, the £1 million AIA is permanent, fixed at £1,000,000 in CAA 2001 section 51A(5) from 1 April 2023; the special-rate pool stays at 6%. Third, there is a genuinely new relief in the mix, the 40% first-year allowance for new and unused main-rate plant, which applies to expenditure incurred on or after 1 January 2026.
Watch three separate dates that often get blurred. The 40% first-year allowance runs from expenditure incurred on or after 1 January 2026 (the section 45U and section 29 commencement). Finance Act 2026 received Royal Assent on 18 March 2026, so the whole package is enacted law, not a proposal. And the 14% writing-down allowance bites for chargeable periods beginning on or after 1 April 2026 for companies and 6 April 2026 for individuals. Those are three different trigger points, not one.
Example 1: commercial plant and machinery, AIA plus the 14% tail
You own a small office building let to a local business. In the year you spend £50,000 on a new heating system, £15,000 on a powered ventilation system and £10,000 on general fitted plant. These are capital costs, not repairs, and the property is commercial, so the section 35 dwelling-house bar does not apply.
The heating and ventilation systems are integral features under CAA 2001 section 33A, so they are special-rate expenditure (£65,000). The general plant (£10,000) is main-rate. You use the Annual Investment Allowance, which gives a 100% deduction up to £1,000,000 on most plant and machinery, including special-rate items. Total spend is £75,000, comfortably under the cap, so the whole £75,000 is written off in the year.
If your rental profit before the claim was £100,000, the £75,000 claim reduces it to £25,000. The cash value of the relief is the deduction multiplied by your marginal rate. As a higher-rate taxpayer that is £75,000 at 40%, a £30,000 reduction in tax for the year.
Watch what happens after the AIA in a bigger spending year. Say you had spent a further £40,000 of main-rate plant above the AIA cap. That £40,000 does not disappear: it enters the main pool and is written down at 14% reducing balance, so £5,600 in the first full year, then 14% of the falling balance each year after. This is the 14% writing-down allowance in action, and it is the figure most people still quote wrongly at 18%. One timing wrinkle catches people out. For a chargeable period that straddles 1 April 2026 (companies) or 6 April 2026 (individuals), Finance Act 2026 section 28(2) to (6) requires a hybrid rate: you time-apportion between 18% for the days before the switch and 14% for the days after. A 12-month period running from 1 January 2026 to 31 December 2026, for example, gets roughly a quarter of the year at 18% and three quarters at 14%, a blended rate of about 15%, not a clean 14%. From the first full period beginning on or after the switch date, it is a flat 14%.
For the detail of which costs fall into which pool on a commercial building, see what you can claim on commercial property and the integral features guide.
Example 2: when the AIA cap bites in a big refurbishment year
Suppose your refurbishment year is larger: £1,300,000 of qualifying plant and machinery across a commercial portfolio held in one company. The Annual Investment Allowance is one £1,000,000 figure per business (or per related group), not per property, so you cannot claim it afresh on each building.
You claim the full £1,000,000 AIA in the year. That leaves £300,000 of qualifying spend above the cap. The excess is allocated to the pools: main-rate plant goes into the main pool and is written down at 14% reducing balance, and special-rate integral features go into the special-rate pool at 6%. Say £200,000 of the excess is main-rate and £100,000 is integral features. The first-year writing-down allowance on the excess is £200,000 at 14% (£28,000) plus £100,000 at 6% (£6,000), so £34,000 in year one, with the balances carrying forward and reducing each year after.
Allocation strategy earns its keep here. You can often direct the AIA at the special-rate spend (which would otherwise only get 6%) and let the faster-writing-down main-rate plant fall into the pool, or claim full expensing on the new main-rate plant instead and reserve the AIA for the integral features. The mechanics of the £1 million cap, including the related-company association rules, are in the AIA cap and allocation guide, and the AIA basics in what AIA means in tax.
Example 3: full expensing for a company, and the 40% first-year allowance for everyone else
Several first-year routes sit alongside the AIA, and which one is open to you depends on who you are and what you are buying. This is the part that trips people up, so it is worth working through rather than skimming.
A company buying new and unused main-rate plant normally claims full expensing: a 100% first-year allowance under CAA 2001 section 45S, available only to companies within the charge to corporation tax, with no annual cap. Take a property SPV that spends £400,000 on new main-rate plant in a commercial fit-out. It writes off the full £400,000 in the year through full expensing, and that leaves the entire £1 million AIA free for other spend in the same year. Full expensing does not reach special-rate integral features at 100%, but a companion 50% first-year allowance applies to a company's new special-rate plant. So if the same SPV also spends £80,000 on new integral features (say a new lift and the cold-water system), the 50% special-rate FYA gives a £40,000 deduction in year one, and the remaining £40,000 drops into the special-rate pool and is written down at 6% (£2,400 the next year). The full-expensing and 50% special-rate mechanics for SPVs are in the full expensing and 50% FYA guide.
If you hold property personally, in a partnership or as a sole trader, you cannot claim full expensing. Instead, Finance Act 2026 section 29 introduced a new 40% first-year allowance. Section 29 inserts CAA 2001 section 45U, which defines the qualifying expenditure (new and unused main-rate plant and machinery, incurred on or after 1 January 2026), and the 40% rate itself is set by section 29 adding a 40% entry to the CAA 2001 section 52 allowance table. It excludes cars, second-hand assets and special-rate (integral-feature) expenditure. Say you own a commercial unit unincorporated and spend £100,000 on qualifying new main-rate plant in a year where the £1 million AIA is already committed elsewhere: the 40% FYA gives an immediate £40,000 deduction, and the remaining £60,000 enters the main pool and is written down at 14% from the following period (£8,400 in that first full year). The 40% allowance is not legally restricted to unincorporated persons, but in practice a company would use full expensing at 100% instead, so the 40% route is the practical one where you cannot or would not use full expensing, including a business that leases out plant.
Side by side, the choice is clearer. Match who you are and what you are buying to the route, then take the higher-percentage relief that is actually available to you:
| First-year route | Who can claim | Rate | What it covers (and excludes) | Statutory basis |
|---|---|---|---|---|
| Full expensing | Companies within the charge to corporation tax only | 100% | New, unused main-rate plant. Excludes cars, second-hand assets and special-rate items | CAA 2001 s.45S (from 1 Apr 2023) |
| 50% special-rate FYA | Companies (companion to full expensing) | 50% | New, unused special-rate plant (integral features); the balance goes to the special-rate pool at 6% | CAA 2001 s.45S companion FYA for special-rate expenditure (from 1 Apr 2023) |
| 40% first-year allowance | Any business; in practice unincorporated landlords and leasing, where full expensing is unavailable | 40% | New, unused main-rate plant, incurred on or after 1 Jan 2026. Excludes cars, second-hand and special-rate items | CAA 2001 s.45U (inserted by FA 2026 s.29); 40% rate via the s.52 table |
| Annual Investment Allowance | Any business (one £1m figure per business or related group) | 100% up to £1,000,000 | Most plant including special-rate integral features. Excludes cars | CAA 2001 s.51A(5) (permanent from 1 Apr 2023) |
For a company the order of preference is usually full expensing on new main-rate plant (100%, uncapped), the 50% special-rate FYA on new integral features, and the AIA to mop up the rest. If you hold property unincorporated, you run the AIA first (100% up to £1m on most spend), then the 40% FYA on any new main-rate plant above the cap.
Example 4: mixed-use property and the section 35 apportionment
Mixed-use buildings are where the dwelling-house bar does its real work. Take a building where the ground floor is a retail unit and the first floor is a residential flat. You install a new boiler serving both parts at a cost of £6,000.
CAA 2001 section 35 says expenditure is not qualifying expenditure if it is incurred on plant or machinery for use in a dwelling-house, but it permits a just and reasonable apportionment where an asset serves both. If the commercial unit occupies 60% of the floor area, you can treat £3,600 (60% of £6,000) as qualifying for capital allowances on the commercial side. The remaining £2,400 relates to the flat and is barred: it instead falls under Replacement of Domestic Items Relief (ITTOIA 2005 section 311A) if and when it is a qualifying like-for-like replacement.
The carve-outs matter here. Plant in the common parts of a block (a communal boiler, a lift, communal lighting) can qualify even though the individual units are dwellings, and integral features in genuine non-dwelling areas qualify. The interaction of section 35 with multi-tenant and HMO common parts is worked through in the HMO common parts guide, and the residential alternative is covered in the landlord deductions list.
Example 5: a former furnished holiday let after April 2025
The furnished holiday lettings regime was abolished from 1 April 2025 for corporation tax and 6 April 2025 for income tax by Finance Act 2025 Schedule 5. Before abolition, an FHL was a separate qualifying activity, so plant and machinery in the cottage (kitchen, beds, white goods) qualified for allowances in a way that ordinary residential lets never could.
Say you had built up a £13,000 plant and machinery pool on a Lake District holiday cottage before April 2025. After commencement, the property is treated as an ordinary residential property business and the section 35 dwelling-house bar applies in full. The pool is not lost: the grandfathered balance transfers into the ordinary property business pool and continues to be written down at the normal rates, the main pool at 14% and any integral features at 6%. What stops is new claims. No new FHL plant and machinery expenditure qualifies after commencement, so a replacement washing machine bought in 2026 is no longer a capital allowances item; it falls under Replacement of Domestic Items Relief instead. The full roll-forward mechanics are in the grandfathered FHL claims guide.
Example 6: a section 198 fixtures claim on a commercial purchase
Buying a commercial property is where allowances are most often lost, because the fixtures already in the building are only claimable if you pass two gates.
You buy an office building for £900,000. A survey identifies £120,000 of plant and machinery fixtures (heating, lighting, ventilation, lifts) embedded in the price. To claim allowances on them, you must satisfy:
- The pooling requirement (CAA 2001 section 187A(4)). The past owner must have pooled the expenditure (allocated it to a pool by claiming AIA, full expensing or writing-down allowances on it). If a previous owner in the chain never pooled the fixtures, they are permanently stranded and no section 198 election can rescue them.
- The fixed-value requirement. The value allocated to the fixtures must be fixed within two years, normally by a joint section 198 election signed by buyer and seller (CAA 2001 section 198), or failing agreement by First-tier Tribunal determination.
If either requirement is in point and is not satisfied, CAA 2001 section 187A(3) treats your new expenditure as nil, and CAA 2001 section 201 imposes a strict two-year deadline running from the date you acquire the interest. If the election is agreed in principle but never executed within two years, you are treated as having incurred nil qualifying expenditure on the fixtures, and the relief on £120,000 of value is lost for good.
What decides how much the election is actually worth is a genuine negotiation. Section 198(3) caps the elected figure at the lower of the seller's original cost of the fixture and the actual sale price, but within that ceiling the two of you choose the number, and your interests pull in opposite directions. Take the £120,000 of fixtures.
- A £120,000 election hands you the full £120,000 of qualifying expenditure to claim going forward (AIA or pool write-down at 14% main rate and 6% special rate). But it also crystallises a disposal value of £120,000 in the seller's pool, which can trigger a balancing charge clawing back allowances the seller already enjoyed.
- A nominal £1 election protects the seller (no meaningful disposal value, no balancing charge) but leaves you with effectively nil qualifying expenditure on the fixtures, so you claim almost nothing.
You want the figure high, the seller wants it low, and the right answer depends on whether the seller has unrelieved pool balances to absorb the disposal value. Pin the election quantum down before exchange, when you still have leverage, rather than after completion, when the seller has no reason to sign a high figure. The buyer-side mechanics, including the negotiation between a high-value and a nominal election, are in the section 198 fixtures claim guide.
Capital allowances and incorporation
If you hold property in a limited company, the same pools and allowances apply, but the value of a claim is set by the corporation tax rate it offsets. For 2026/27 the main rate is 25% on profits over £250,000, the small-profits rate is 19% for profits up to £50,000, and marginal relief tapers between £50,000 and £250,000. A £100,000 capital allowance therefore saves a main-rate company £25,000 and a small-profits company £19,000.
Incorporation also unlocks full expensing, which you cannot use as an individual, so if you are planning a heavy commercial fit-out the relief profile can become part of the incorporation case. Full expensing is companies-only, and it does not reach special-rate integral features at 100% (a 50% first-year allowance applies to those instead). The wider incorporation picture is in our incorporation guide; the capital allowances position is one lever among several, not a reason in itself.
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What does not qualify for capital allowances
The boundaries are as important as the claims:
- The building structure and shell (walls, floors, ceilings, doors, windows) is not plant and machinery. It may instead attract the separate 3% Structures and Buildings Allowance under CAA 2001 section 270AA if construction began on or after 29 October 2018 and an allowance statement is held. See the SBA mechanics guide for the boundary.
- Repairs and maintenance are revenue deductions, not capital allowances.
- Plant and machinery in a dwelling-house (a let flat or house) is barred by section 35; use Replacement of Domestic Items Relief instead.
- Cars are excluded from both the AIA and the new 40% FYA. Only new, unused zero-emission cars (0 g/km) get a 100% first-year allowance under CAA 2001 section 45D; other cars go into the main pool (≤50 g/km) or special-rate pool (over 50 g/km).
- Land and the cost of acquiring it.
How to claim, and reviewing a property you already own
Capital allowances are claimed through your self-assessment or corporation tax return, in the capital allowances computation. Where the AIA, full expensing or the 40% FYA applies, you take the deduction in the period the expenditure is incurred; the balance of any pooled expenditure is written down each year at 14% or 6%.
For a property you already own, a capital allowances review can identify qualifying plant and machinery from earlier years that was never pooled, provided it was not already treated as a repair or revenue cost. On a commercial property bought from a previous owner, the review turns on the section 198 and pooling history, so the transaction documents matter as much as the build cost. When fixtures are sold with a building, the seller-side disposal values and any balancing charge are governed by the pool mechanics; the disposal and balancing-charge detail is in the balancing allowance guide. If you want the qualification rules rather than the numbers (what counts as plant, why dwellings are barred, and how the reliefs interact), see capital allowances on property and the full CAA 2001 decision framework.
Common mistakes landlords make
- Claiming AIA on a single-let dwelling. Section 35 bars plant and machinery allowances on boilers, kitchens and bathrooms inside a let house or flat. The residential route is Replacement of Domestic Items Relief.
- Quoting the writing-down allowance at 18%. The main-pool rate is 14% from April 2026; only legacy periods used 18%.
- Treating the AIA as £1 million per property. It is one £1 million figure per business or related group.
- Assuming a company can rely on the 40% FYA. A company normally uses full expensing at 100% instead; the 40% FYA is the practical route where full expensing is unavailable.
- Missing the section 198 two-year deadline. An unexecuted election loses the fixtures allowances permanently under section 187A(3).
- Confusing an SBA allowance statement with a section 198 election. They are different documents for different reliefs and you may need both on a commercial purchase.
Claim value, unrelieved balances and what happens on a sale
Are capital allowances worth it for a commercial property?
Yes, on almost any commercial building, because the relief is measured in tens of thousands of pounds against a one-off review cost. The Example 1 claim of £75,000 through the AIA is worth £30,000 in cash to a higher-rate individual and £18,750 to a company paying the 25% main rate. The Example 6 purchase carried £120,000 of fixtures embedded in the price, none of which the buyer would have claimed without identifying them. The exception is residential: on a let house or flat the section 35 dwelling-house bar blocks plant and machinery allowances entirely, so the work is only worth commissioning on commercial property, common parts, or the commercial share of a mixed-use building.
How do you calculate unused capital allowances on a commercial property in the UK?
Take the original qualifying expenditure, subtract every allowance already claimed on it, and the remainder is the unrelieved balance that continues to attract writing-down allowances. On £120,000 of fixtures with £20,000 of allowances already taken, £100,000 is unrelieved, and the next full year's writing-down allowance is £14,000 at the 14% main-pool rate or £6,000 at the 6% special rate, depending on which pool the expenditure sits in. Qualifying spend that was never pooled at all is a separate exercise: a capital allowances review can identify it and bring it into a pool now, provided it was not already relieved as a repair or revenue cost. On a property bought from a previous owner, what remains claimable is governed by the pooling history and the section 198 position, not by the price you paid, so the transaction documents decide the answer.
What does a capital allowance calculation example look like?
Every calculation is the same two steps: qualifying spend multiplied by the rate for its pool, then that deduction multiplied by your tax rate to get the cash value. Spend £10,000 on main-rate plant in a commercial unit and claim the AIA, and the whole £10,000 is deducted in the year, worth £4,000 to a 40% taxpayer. If the AIA is already committed elsewhere and the plant is new and unused, the 40% first-year allowance under CAA 2001 s.45U takes it next for expenditure incurred on or after 1 January 2026: £4,000 in year one, with only the remaining £6,000 entering the main pool at 14%, so £840 the following year and a reducing balance from there. Second-hand plant gets no first-year allowance and goes straight into the main pool at 14%, giving £1,400 in the first full year, then 14% of the £8,600 balance, so £1,204 the year after. Swap the plant for integral features and the rate becomes 6%, so £600 in year one. The six worked examples above run this same arithmetic across AIA, full expensing, the 40% first-year allowance and a section 198 fixtures claim.
What happens to capital allowances on the sale of a property?
A sale brings a disposal value out of the pool, and if that disposal value exceeds the remaining pool balance the difference is a balancing charge, which is taxable income clawing back relief already given. Where fixtures are sold with a commercial building, the disposal value is the figure fixed in the joint section 198 election, capped by section 198(3) at the lower of the seller's original cost and the sale price. That is why the election is a negotiation: a nominal £1 election leaves the seller with no meaningful disposal value and no balancing charge but hands the buyer almost nothing, while a full-value election gives the buyer the qualifying expenditure and can trigger the charge on the seller. Structures and Buildings Allowance behaves differently: there is no balancing event, but the cumulative SBA claimed is added back into the capital gains computation on disposal, so the relief is deferred rather than free.
Sources
The figures and statutory positions on this page were verified against the following on 2 June 2026. Finance Act 2026 (c. 11) received Royal Assent on 18 March 2026 and is enacted law.
- CAA 2001 s.56 (main-pool 14% WDA, substituted by FA 2026 s.28(1)): legislation.gov.uk
- Finance Act 2026 s.28 (14% WDA substitution, straddling-period hybrid): legislation.gov.uk
- Finance Act 2026 s.29 (new 40% FYA, inserting CAA 2001 s.45U, adding the 40% entry to the s.52 table): legislation.gov.uk
- CAA 2001 s.51A (AIA £1,000,000, permanent): legislation.gov.uk
- CAA 2001 s.45S (full expensing, companies only): legislation.gov.uk
- CAA 2001 s.35 (dwelling-house restriction): legislation.gov.uk
- CAA 2001 s.33A (integral features, special-rate pool): legislation.gov.uk
- CAA 2001 s.187A (pooling requirement at s.187A(4), nil treatment at s.187A(3)): legislation.gov.uk
- CAA 2001 s.198 (fixtures election, quantum cap at s.198(3)): legislation.gov.uk
- Finance Act 2025 Sch 5 (furnished holiday lettings abolition): legislation.gov.uk
- ITTOIA 2005 s.311A (Replacement of Domestic Items Relief): legislation.gov.uk
Frequently Asked Questions
Common questions on capital allowances for UK property, with the worked numbers above as the reference.