What Are Capital Allowances on Property?
Capital allowances on property let you deduct the cost of certain qualifying assets from your taxable profits. Instead of treating the full cost as a one-off expense, you claim relief either immediately or spread across several years, depending on the asset and the allowance that applies. They are the capital-side counterpart to the everyday revenue deductions a landlord claims, and they sit on a different part of the tax computation entirely.
HMRC describes capital allowances as relief for equipment, machinery and certain fixtures you buy for a business [1]. For property investors that usually means qualifying plant and machinery in commercial buildings, integral features such as electrical and heating systems, and, for new non-residential construction, the Structures and Buildings Allowance. It is governed by the Capital Allowances Act 2001, reshaped most recently by Finance Act 2026.
Two questions decide everything. First, is the cost capital or revenue? Repairs are revenue expenses you deduct in full in the year. Capital expenditure either qualifies for a capital allowance or, if it does not, adds to the property's base cost for capital gains tax later. Our capital vs revenue expenditure guide walks through the HMRC tests that decide it. Second, and this is where most landlords go wrong, the rules turn sharply on the type of property. A residential buy-to-let is largely shut out of plant and machinery allowances by statute; a commercial building is wide open. The matrix below answers, at a glance, whether your property type qualifies and which allowance applies, and then routes you to the deeper guide on each mechanism.
Quick-Decision Matrix: Does Your Property Qualify?
Read across the row for your property or the area you are spending on. The left columns tell you whether plant and machinery allowances are available and which allowance applies; the right columns give the governing statute and the deep-dive guide for that route. Every figure here is a statutory rule, not a fee.
| Property / area type | P&M allowances? | Which allowance applies | Key statute / nuance | Deep-dive |
|---|---|---|---|---|
| Residential dwelling (buy-to-let flat or house interior) | No | None for in-dwelling plant; use replacement of domestic items relief or revenue repairs instead | CAA 2001 s.35 dwelling-house bar | Landlord deductions list |
| Common parts of a block or HMO (communal boiler, lift, stairwell lighting, door entry) | Yes, on the common-parts portion | AIA, WDA, 40% FYA or full expensing as applicable | Outside the s.35 dwelling-house definition; just and reasonable apportionment where shared | HMO common-parts mechanics |
| Commercial property (offices, shops, warehouses, industrial) | Yes, the full regime | AIA plus WDA; integral features in the special rate pool | s.33A integral features; List C plant | Commercial: what you can claim |
| New non-residential construction (the building shell) | No on the shell; SBA instead | SBA 3% straight-line over 33 and one third years | s.270AA; allowance statement s.270IA; s.270CF residential bar | SBA claim mechanics |
| Former furnished holiday let (since 6 Apr 2025 / 1 Apr 2025) | No on new spend | Grandfathered pools continue WDA; new spend barred by s.35 | FA 2025 Sch 5; now an ordinary residential business | FHL grandfathered claims |
| Fixtures bought with a commercial property | Yes, if pooled and elected | Buyer claims the s.198 election value | s.187B pooling gate; s.198 two-year election | Disposal and fixtures mechanics |
Residential Property: The Section 35 Dwelling-House Bar
For most residential landlords, plant and machinery allowances are off the table, and the reason is statutory rather than a matter of HMRC opinion. Section 35 of the Capital Allowances Act 2001 provides that expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house, where the qualifying activity is an ordinary UK or overseas property business [2]. A boiler, a fitted kitchen, a bathroom suite or a heating system inside a let house or flat generates no capital allowance. Instead, residential landlords claim relief on the like-for-like replacement of items such as white goods, carpets and furniture through replacement of domestic items relief, and on genuine repairs as revenue deductions. Our complete list of landlord tax deductions sets out what residential landlords can actually claim.
The important nuance is that section 35 bars plant for use in a dwelling-house, not plant elsewhere in the same building. There is no separate carve-out subsection; rather, the common parts of a block simply fall outside the dwelling-house definition, so the bar does not reach them. Plant serving those common parts (a communal boiler, a shared lift, stairwell and corridor lighting, a door-entry system) can therefore qualify. Where one item serves both the dwellings and the common parts, section 35 requires a just and reasonable apportionment of the cost between the qualifying and non-qualifying use.
Worked example: the common parts of a converted building. A landlord owns a converted Victorian building split into six flats with a shared entrance hall, stairwell and a communal gas boiler feeding all six units. The boiler, the stairwell lighting and the door-entry system are not in any individual dwelling, so they are candidates for capital allowances on the common-parts portion. The kitchens, bathrooms and individual flat heating controls inside each flat are barred by section 35. If the boiler also serves a ground-floor commercial unit, the cost is apportioned between the qualifying use (common parts plus commercial) and the non-qualifying dwelling use.
HMOs and student housing follow the same logic, and rental capital allowances on this kind of multi-tenant property reward precise apportionment. Communal plant can qualify; plant inside the let rooms or units cannot. This is the single most common misconception in residential capital allowances, so the HMO common-parts claim mechanics are worth working through before any claim is built.
Commercial Property: The Full Plant and Machinery Regime
Commercial property owners have the widest access to capital allowances on property, and a capital allowance claim on commercial property is where the real value usually sits. If you let offices, shops, warehouses, industrial units or other non-residential premises, you can claim on qualifying plant and machinery installed in the building. Typical qualifying fixtures include [1]:
- Heating, ventilation and air conditioning systems
- Lifts, escalators and moving walkways
- Fire alarm and security systems
- Sanitary fittings and certain kitchen equipment
- General lighting and certain electrical systems
- Demountable partitioning and signage in some cases
Many of these are integral features, which sit in the special rate pool under section 33A of the Capital Allowances Act 2001: electrical and lighting systems, cold and hot water systems, space and water heating systems, lifts and escalators, external solar shading and certain ventilation and air-cooling systems. Our integral features guide covers the five categories and how they pool; for the full menu of what qualifies in a commercial building, see what you can claim on commercial property.
For buyers of second-hand commercial property, the fixtures already embedded in the building may carry unclaimed allowances, but only if the paperwork is right. Identifying them usually needs a capital allowances survey and a valid section 198 election with the seller to fix the value (covered in the disposal section below). If you are considering converting a commercial property to residential use, the position changes once it becomes a dwelling, so the timing of expenditure matters and specialist advice is sensible before you start.
The Annual Investment Allowance (AIA): Permanent at £1 Million
The Annual Investment Allowance gives 100% tax relief in the year of spend on qualifying plant and machinery, up to a generous annual cap. Section 51A(5) of the Capital Allowances Act 2001 fixes the maximum at £1,000,000, and that level was made permanent from 1 April 2023 by Finance (No. 2) Act 2023 [3]. The old framing, that the £1 million cap is temporary and will revert to £200,000, is out of date.
The AIA is available to most businesses, including property businesses that hold commercial property. It covers most plant and machinery, including special rate items such as integral features, but it does not cover cars or assets you owned for another purpose before bringing them into the business. Because residential dwellings are barred by section 35, an ordinary residential landlord rarely has AIA-qualifying spend at all; the AIA is mainly a commercial-property and common-parts tool. Where you spend more than £1 million on qualifying plant in a single year, the excess goes into the main pool or the special rate pool and is written down over time. For how to allocate the AIA across assets and associated businesses, see our Annual Investment Allowance guide and the detail on the £1m cap and association rules.
Full Expensing and the New 40% First-Year Allowance
Two first-year allowances sit alongside the AIA, and the distinction between them turns on whether you trade through a company.
Full expensing is a 100% first-year allowance on new and unused main-rate plant and machinery under section 45S of the Capital Allowances Act 2001. It is permanent and available only to companies within the charge to corporation tax. There is a companion 50% first-year allowance for new and unused special rate assets, also company-only. Full expensing is unavailable to sole traders, partnerships and LLPs, and it does not extend to plant bought for leasing. Our full expensing and 50% FYA guide for commercial property SPVs covers the company-side mechanics.
The new 40% first-year allowance was introduced by Finance Act 2026 section 29, which inserted section 45U into the Capital Allowances Act 2001 with effect from 18 March 2026 [4]. It gives a 40% first-year allowance on new and unused main-rate plant and machinery where the expenditure is incurred on or after 1 January 2026. It excludes cars, second-hand or used assets, and assets for leasing overseas. The section sets no incorporation test, so it is not strictly companies-only or unincorporated-only. In practice it is the first-year route for sole traders, partnerships and individual landlords with qualifying commercial plant, and for leasing, because a company buying qualifying new main-rate plant will normally take 100% full expensing instead.
Worked example: a sole trader buying commercial plant. A self-employed investor owns a let workshop unit and spends £60,000 in February 2026 on a new, unused ventilation and racking installation that is main-rate qualifying plant. As a sole trader she cannot use full expensing (companies only). She could use her AIA to write off the whole £60,000 at 100% in the year, but suppose she has already used her AIA on other expenditure. The 40% first-year allowance under section 45U then gives her £24,000 of relief in the first year, with the remaining £36,000 going into the main pool to be written down at 14%.
The mistake to avoid is treating the 40% first-year allowance as though it covered cars (it does not) or as though companies were locked out (they are not, though they would usually prefer full expensing). For low-emission vehicles, the only first-year allowance is the 100% relief for new, unused zero-emission (0 g/km) cars under section 45D; cars above that get no first-year allowance and are pooled by emissions, as our writing-down allowance on cars guide explains.
Writing-Down Allowances: 14% Main Pool, 6% Special Rate
Where an asset does not get the AIA or a first-year allowance, you claim writing-down allowances on the reducing balance of the relevant pool. The main pool now stands at 14% per year, reduced from 18% by Finance Act 2026 section 28, which substituted 14% into section 56(1) of the Capital Allowances Act 2001, effective for chargeable periods beginning on or after 1 April 2026 for corporation tax and 6 April 2026 for income tax [5]. The main pool holds general plant such as office furniture, computers and most loose equipment. The special rate pool stays at 6% under section 104D, holding integral features, long-life assets and thermal insulation; that rate did not change in Finance Act 2026.
A chargeable period that straddles the start date does not simply pick 18% or 14%. Under section 28(2) to (6) it applies a hybrid, time-apportioned rate: roughly, the part of the period before the start date carries 18% and the part from the start date carries 14%, blended to a single effective rate. Periods beginning wholly on or after the start date use the clean 14%. Our writing-down allowance rates guide works the hybrid calculation through in full and covers short-period proportioning.
The Structures and Buildings Allowance (SBA)
The SBA is a separate relief for the construction cost of non-residential buildings and structures, distinct from plant and machinery. Section 270AA of the Capital Allowances Act 2001 gives a 3% straight-line annual allowance on qualifying construction expenditure, over an allowance period of 33 and one third years, where construction began on or after 29 October 2018 and the first use is non-residential [6]. The relief is on the build cost itself (offices, shops, factories, bridges, car parks, extensions), not the land and not the plant inside, which goes through the plant and machinery regime instead. A company that builds a new commercial unit for £1,000,000 excluding land claims £30,000 a year for 33 and one third years; the rate is fixed and does not flex with inflation or market value.
Two traps make the SBA different from plant allowances. First, the allowance statement: section 270IA(2) treats the qualifying expenditure as nil until the allowance statement requirement is met, so a buyer of a second-hand building who cannot get a written allowance statement from the chain of ownership cannot claim anything. Second, the capital gains interaction: there is no balancing event on sale, but the cumulative SBA you have claimed increases your disposal consideration for capital gains tax under section 37B of the Taxation of Chargeable Gains Act 1992, so the relief is partly clawed back through a larger gain. The SBA is also blocked on residential use by section 270CF. For the full claim mechanics, see our SBA claim-mechanics guide.
Furnished Holiday Lets: The Regime Has Been Abolished
Until recently, a furnished holiday let was treated as a qualifying activity in its own right and could access the full plant and machinery regime even though it was residential. That route is gone. Finance Act 2025 Schedule 5 abolished the furnished holiday lettings regime from 6 April 2025 for income tax and 1 April 2025 for corporation tax [7].
The consequences for capital allowances are direct. A former FHL is now an ordinary residential property business, so the section 35 dwelling-house bar applies to any new spend, exactly as it does to any other residential let. New furniture, kitchens and heating inside the property no longer qualify for plant and machinery allowances. However, pools of plant and machinery built up while the property was a qualifying FHL are grandfathered: the brought-forward balances are carried into the ordinary property business and continue to be written down under the normal writing-down allowance rules. You keep writing down what you already pooled; you simply cannot add new dwelling-house plant to it. Which transitional reliefs survived (some capital gains protection did, for disposals tied to the pre-abolition period) is a planning conversation, and the FHL grandfathered claims guide sets out the mechanics.
Capital Allowances at a Glance: Rates and Who Can Claim
This table consolidates the rate spine in one place. Every amount is a statutory rule or threshold, not a fee.
| Allowance | Rate | Who / when | Statute |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% in year, up to £1,000,000 | Permanent from 1 Apr 2023; businesses with qualifying plant (not in-dwelling) | CAA 2001 s.51A(5); F(No.2)A 2023 |
| Full expensing | 100% first-year | Companies only; new and unused main-rate plant | CAA 2001 s.45S |
| 50% first-year allowance | 50% first-year | Companies only; new and unused special-rate assets | CAA 2001 s.45S companion |
| New 40% first-year allowance | 40% first-year | New and unused main-rate plant, spend on or after 1 Jan 2026; excludes cars, second-hand, overseas leasing | FA 2026 s.29 inserting CAA 2001 s.45U |
| Main-pool WDA | 14% reducing balance | From 1 Apr 2026 (CT) / 6 Apr 2026 (IT); straddling-period hybrid | FA 2026 s.28 amending CAA 2001 s.56(1) |
| Special-rate-pool WDA | 6% reducing balance | Unchanged; integral features, long-life assets | CAA 2001 s.104D |
| Structures and Buildings Allowance | 3% straight-line (33 and one third yrs) | Non-residential construction on or after 29 Oct 2018 | CAA 2001 s.270AA |
| Zero-emission car FYA | 100% first-year | New and unused 0 g/km cars | CAA 2001 s.45D |
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How to Claim, and the Two-Year Window
You claim capital allowances through your tax return: the self assessment return for individuals and partnerships, or the company tax return (CT600) for companies. You identify which assets qualify, calculate the cost, and apply the right allowance (AIA, a first-year allowance, or writing-down allowances).
Timing matters. For a specific period, a claim is made or amended within the normal time limit for that return, broadly two years from the end of the accounting period or within the self assessment amendment window for that tax year. Plant already in a pool can still be claimed in later periods while you own and use it, but missing the window for a given period can lose relief for that period. For a commercial property you already own where the seller never provided an allowances schedule, you usually need a capital allowances survey to identify embedded fixtures before the position is settled, and fixtures carry the tighter section 198 conditions covered below.
Capital Allowances When You Sell a Commercial Property
On a sale, the treatment depends on what was claimed and what passes to the buyer. Where qualifying fixtures pass with the building, disposal values are brought into the seller's computation under section 61, using the fixtures Table at section 196. If the disposal value brought in exceeds the relevant pool balance, the difference is a balancing charge, a taxable receipt that claws back relief. In practice, buyer and seller fix the fixtures value by a joint section 198 election [8], which then becomes both the seller's disposal value and the buyer's qualifying expenditure. The election has its own deadline and depends on the seller having first pooled the expenditure; without a valid election and prior pooling, the buyer's fixtures claim can be barred altogether. Our balancing charge and disposal guide works the figures through.
The SBA, by contrast, has no balancing event on sale, but the cumulative SBA claimed increases the seller's disposal consideration for capital gains tax under section 37B [9]. For residential property, capital allowances are rarely an issue on disposal because the section 35 bar means little plant was ever pooled; the exception is a block with qualifying common parts, where you should keep records of anything claimed.
Holding Property Through a Limited Company
A company has the widest access to the allowances on this page. It can claim the AIA, main pool and special rate writing-down allowances, full expensing at 100% on new and unused main-rate plant, the 50% first-year allowance on new special rate assets, and the SBA on qualifying non-residential construction. What a company cannot do is escape the section 35 dwelling-house bar: a corporate residential landlord is restricted to common parts in exactly the same way an individual is, and full expensing has no application to dwellings.
For investors weighing the structure, full expensing and the broader corporation tax treatment of plant are genuine factors in the incorporation decision, though rarely the decisive one on their own. Our buy-to-let limited company guide sets the capital allowances point alongside the wider trade-offs.
Capital Allowances and Making Tax Digital
Making Tax Digital for Income Tax is now being phased in for landlords and the self-employed. From 6 April 2026 it applies to those with qualifying income over £50,000, from 6 April 2027 to those over £30,000, and from 6 April 2028 to those over £20,000. In scope, you must keep digital records and send quarterly updates, with a year-end process that finalises the position.
Capital allowances are part of that year-end position rather than something quantified afresh each quarter, but the underlying records (invoices, contracts, asset and pool registers) need to be digital and current. If you are not yet on compliant software, getting your capital allowances pools into it early avoids a scramble. Our guide to the April 2026 MTD deadline for landlords sets out what to do.
Where to Go Next
This page is the property capital allowances router. The detail for each mechanism lives in its own guide:
- The full CAA 2001 decision framework for who can claim what, on which spend, through which vehicle.
- Annual Investment Allowance allocation and association rules.
- Writing-down allowance rates, including the straddling-period hybrid.
- SBA claim mechanics and the allowance statement.
- Integral features and the special rate pool.
- Full expensing and the 50% FYA for company landlords.
When to Get Professional Advice
Capital allowances reward precision and punish guesswork. The areas where a specialist usually earns their place are buying or selling commercial property (the fixtures pooling and section 198 election), a block of flats or HMO with significant common-parts plant, a commercial-to-residential conversion, a large portfolio with material capital spend, and any second-hand building where the SBA allowance statement is missing.
A specialist can identify qualifying assets a generic tax return would miss, build a defensible claim, and keep the interaction with Section 24, the SBA capital gains add-back and MTD clean. Note that Section 24, the restriction of residential mortgage interest to a 20% basic-rate credit, is a separate regime from capital allowances and should never be conflated with it.
If you would like an introduction to a property tax specialist who handles capital allowances claims and reviews, use the form on this page and we will connect you with a partner firm suited to your portfolio.
Sources
- gov.uk: Claim capital allowances: overview - GOV.UK
- legislation.gov.uk: Capital Allowances Act 2001, s.35 (dwelling-house restriction)
- legislation.gov.uk: Capital Allowances Act 2001, s.51A (AIA maximum £1,000,000)
- legislation.gov.uk: Capital Allowances Act 2001, s.45U (40% first-year allowance, inserted by FA 2026 s.29)
- legislation.gov.uk: Capital Allowances Act 2001, s.56 (main pool WDA 14%, substituted by FA 2026 s.28)
- legislation.gov.uk: Capital Allowances Act 2001, s.270AA (Structures and Buildings Allowance)
- legislation.gov.uk: Finance Act 2025, Schedule 5 (abolition of the FHL regime)
- legislation.gov.uk: Capital Allowances Act 2001, s.198 (fixtures election on sale)
- legislation.gov.uk: Taxation of Chargeable Gains Act 1992, s.37B (SBA disposal-consideration uplift)