Full expensing is the headline relief in the post-Spring-2023 capital-allowances framework: a 100 per cent first-year allowance on qualifying main-rate plant and machinery, with a 50 per cent companion first-year allowance on special-rate plant, both restricted to companies and to unused and not second-hand assets. For property SPVs, the practical question is rarely the headline rate. It is the qualifying-conditions filter: is the claiming entity a company within the charge to corporation tax, is the plant unused and not second-hand, does the leasing-out exclusion at CAA 2001 s.46(4) bite on plant installed in let commercial premises, and how does the disposal-value clawback work when the SPV later sells the building or transfers the plant to a connected company.

This page walks the s.45S mechanic, the 50 per cent special-rate companion, the s.45T disqualifying-arrangements exclusion, the operationally material s.46(4) leasing-out exclusion (with the Autumn-Budget-2024 extension to leased plant still pending commencement as of May 2026), the interaction with the £1 million AIA in a refurbishment-heavy year, the 1.0x disposal-value treatment that distinguishes full expensing from the historic super-deduction's 1.3x uplift, and the connected-party disposal-value substitution that bites on intra-group plant transfers.

What full expensing is: CAA 2001 s.45S

The statutory base is CAA 2001 s.45S, inserted by Finance (No. 2) Act 2023 with effect from 1 April 2023. The section sets out four conditions for first-year qualifying expenditure under s.45S, drawn verbatim from the legislation: (a) the expenditure is incurred on or after 1 April 2023; (b) the expenditure is incurred by a company within the charge to corporation tax; (c) the expenditure is on plant or machinery which is unused and not second-hand; and (d) the expenditure is not excluded by s.45T (disqualifying arrangements) or s.46 (general exclusions).

Where the four conditions are met, the company is entitled to a first-year allowance of 100 per cent of the qualifying expenditure in the chargeable period of incurring. The allowance is given against trading profits or property business profits, depending on the qualifying activity. There is no expenditure cap (unlike AIA's £1 million cap), and no cumulative limit across periods.

Full expensing was made permanent at Autumn Statement 2023 and confirmed at Autumn Budget 2024. The section as enacted has no sunset clause; the permanence is reflected in the absence of a sunset-date subsection. The economic significance for companies is material: a £2 million main-rate plant acquisition in a chargeable period generates £2 million of immediate first-year deduction, rather than a 18 per cent reducing-balance WDA stream over many years.

The 50% special-rate FYA companion

The 50 per cent first-year allowance is the companion provision for special-rate plant: integral features under CAA 2001 s.33A (lighting and electrical systems; cold-water systems; space and water heating, powered ventilation, air cooling and air purification systems and the floors and ceilings forming part of such systems; lifts, escalators and moving walkways; external solar shading), long-life assets under CAA 2001 s.90, thermal insulation under s.28, and certain other special-rate items.

The conditions for the 50 per cent companion mirror s.45S: companies-only, unused and not second-hand, on or after 1 April 2023, not excluded by s.45T or s.46. The mechanic is different: 50 per cent of the qualifying expenditure is written off in the chargeable period of incurring as a first-year allowance, with the remaining 50 per cent rolling into the special-rate pool at 6 per cent reducing-balance WDA from the next period. The split treatment reflects the special-rate pool's slower writing-down rate; full expensing on main-rate plant gives 100 per cent immediate because the main pool's 18 per cent rate is materially more generous, and the legislator chose to give the special-rate version a partial uplift rather than full.

For a property SPV planning a refurbishment, the split between main-rate and special-rate plant matters operationally. Removable equipment, IT systems and certain plant attached to but not part of the building structure go main-rate (full expensing at 100 per cent). Integral features and long-life assets go special-rate (50 per cent immediate plus 50 per cent into the pool). The allocation is typically performed by a quantity surveyor for larger refurbishment programmes; getting the allocation right protects the cash-tax position.

The leasing-out exclusion: CAA 2001 s.46(4)

CAA 2001 s.46(4) excludes from first-year allowance eligibility (including s.45S full expensing and the 50 per cent special-rate FYA) plant or machinery provided for leasing to another person. The exclusion has been the operationally most material constraint on property structures using full expensing in the period from 1 April 2023 to date.

The interpretive question for property SPVs is where the line falls between plant provided to a tenant under the property lease (typically inside scope of the exclusion if treated strictly) and plant installed by the landlord and operated as part of the landlord's commercial-property letting business (typically accepted as the SPV's own plant). HMRC and the courts have generally accepted that integral features and removable plant installed by a commercial-property SPV in a let building, where the plant remains the SPV's property and is not subject to a separate chattels lease to the occupant, are on the SPV's own side of the line, not "provided for leasing" to the tenant. The reasoning is that the plant is part of the property letting business as a whole, not a separately-leased asset.

Where plant is genuinely leased separately to the occupant (a chattels lease over heavy machinery for a manufacturing tenant; specialised equipment leased to an operating tenant alongside the property lease), s.46(4) bites and full expensing is barred. The careful drafting of leases matters: a single property lease including the building plus integral features is in better s.46(4) shape than a property lease plus a separate plant lease.

The pending extension to leased plant (Autumn Budget 2024)

Autumn Budget 2024 announced an extension of full expensing to plant for leasing, removing the s.46(4) leasing-out exclusion from s.45S (and from the 50 per cent special-rate FYA). The policy intent was to allow chattels-leasing businesses (companies whose business is leasing plant to operating end-users) to claim full expensing on plant acquired for that purpose, putting them on the same footing as companies that use the plant in their own operations.

At the time of writing (May 2026), the commencement appointment order for the extension has not appeared on legislation.gov.uk. The extension is therefore not in force. Property SPVs and chattels-leasing companies should not assume the extension is in force in claiming returns for chargeable periods up to and including 2026/27; the s.46(4) exclusion continues to bite until the order is published with an appointed date. Once in force, claims for chargeable periods on or after the appointed date can rely on the extension.

For property SPVs whose plant is on the landlord-side of the s.46(4) line under the pre-extension interpretation, the practical impact of the extension when it lands will be modest because the position is already defensible. The extension matters most for genuinely-separate chattels-leasing structures.

The s.45T disqualifying-arrangements exclusion

CAA 2001 s.45T excludes expenditure from s.45S eligibility where the expenditure is part of a disqualifying arrangement. A disqualifying arrangement is broadly one whose main purpose, or one of whose main purposes, is to secure a tax advantage that would not arise without the arrangement, where the arrangement is not a reasonable course of action under the legislation.

The provision is an anti-avoidance gate aimed at structured transactions designed to inflate full-expensing claims. The classic case it targets is a circular asset purchase between connected parties intended to manufacture qualifying expenditure on what is economically existing plant: HoldCo A sells a piece of plant to HoldCo B at market value, HoldCo B installs the plant, then HoldCo B claims full expensing on the "new" plant. Where the main purpose of the chain is the tax claim rather than a genuine commercial restructuring, s.45T denies the claim.

For most genuine property-SPV plant acquisitions from third-party suppliers, s.45T does not bite. The provision is most often triggered in artificially-constructed group transactions; an SPV acquiring new plant from a manufacturer or distributor is well outside scope. HMRC's interpretive position is set out in their Capital Allowances Manual; the Tax Avoidance segment of HMRC's published guidance gives the operating tests.

"Unused and not second-hand" in practice

CAA 2001 s.45S(1)(c) requires the plant to be both unused at the time of acquisition by the claiming company AND not second-hand. The two limbs are separate and both must be met. "Unused" means the plant has not been put into use by any previous owner; a brand-new asset off the manufacturer's production line meets the unused test. "Not second-hand" means the plant has not been previously sold or transferred to another person in a way that would constitute prior ownership for capital-allowances purposes.

The combined effect for property SPVs is that full expensing applies only to plant the SPV is the first owner of and the first user of. New plant acquired from a manufacturer's first-tier distributor passes both tests. Plant acquired from a related connected company in a group restructuring fails the not-second-hand test (and may also fail the unused test where the connected company had it operating). Plant from a non-connected third party that is being sold ex-warehouse before any use also fails the not-second-hand test in the strict reading because there has been a prior owner, even if the prior owner did not actually use the plant.

Used plant or second-hand plant goes to AIA (which is available on used plant) up to the £1 million cap, then to the main pool at 18 per cent reducing-balance WDA. Plant for which the SPV cannot satisfy s.45S(1)(c) is not eligible for full expensing regardless of any other claim characteristics.

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Interaction with AIA: the allocation question in a refurbishment-heavy year

AIA at £1 million and full expensing run as complementary routes for company qualifying spend. AIA is available to individuals, companies and partnerships, on used or new plant, on main-rate or special-rate spend, up to the group cap. Full expensing is companies-only, on unused-and-not-second-hand main-rate plant, with no upper limit. The optimal allocation depends on the mix of spend in the period.

For a property SPV in a refurbishment-heavy chargeable period, the typical optimal allocation is sequential. First, AIA on special-rate spend (because the 50 per cent FYA delivers only half-write-off whereas AIA delivers full); second, AIA on used main-rate spend (because full expensing is barred on used plant); third, full expensing on unused main-rate spend above the cap (which has no cap of its own). Special-rate spend above the AIA cap goes to the 50 per cent FYA. The aim is to maximise immediate write-off and minimise pool roll into subsequent periods.

Take an anonymised SPV in a single 12-month period: £350,000 of unused special-rate spend (new HVAC and lighting); £200,000 of used special-rate spend (refurbished older integral features from a connected donor unit, second-hand); £500,000 of unused main-rate spend (new IT, security, removable equipment); £150,000 of used main-rate spend (refurbished older equipment from a non-connected source, second-hand). Aggregate: £1,200,000.

Optimal allocation: AIA on the £200,000 used special-rate (no FYA route for used) plus £350,000 unused special-rate plus £150,000 used main-rate plus £300,000 unused main-rate, totalling £1,000,000 of AIA absorption. Residual: £200,000 of unused main-rate spend, which goes to full expensing at 100% with no roll. Period-one total write-off: £1,200,000, all immediate. Without full expensing on the residual, the £200,000 unused main-rate would have rolled into the main pool at 18% WDA, taking years to relieve. The AIA-vs-full-expensing allocation question is the practical core of refurbishment-year planning.

Disposal-value treatment: 1.0x not 1.3x

On disposal of an asset on which full expensing was claimed, the disposal value goes into the relevant pool computation under CAA 2001 s.55 (the AQE vs TDR mechanic walked in detail in bucket sibling page C2 on balancing allowances and charges) and the s.61 disposal-event taxonomy. The disposal-value treatment is 1.0x: the actual disposal value (or open market value in a connected-party context per s.61 table item 2) goes into the pool at its face amount.

This contrasts sharply with the historic super-deduction (FA 2021 ss.9-10), which carried a 1.3x disposal-value uplift under FA 2021 Schedule 10: disposal proceeds on a super-deducted asset were inflated by 30 per cent when computing the balancing charge, recouping at acquisition-rate the relief that landed at 130 per cent. Full expensing relieved at 100 per cent and recoups at 100 per cent, with no factor uplift on the disposal value. The 50 per cent special-rate FYA companion likewise carries a 1.0x mechanism (not the historic 0.5x super-deduction-era special-rate uplift).

For an asset that was entirely written off under full expensing in the period of acquisition, the asset's contribution to the main pool's available qualifying expenditure is nil from that point forward; any disposal value brought into the pool generates an equivalent balancing charge in the chargeable period of disposal. For the 50 per cent FYA, the residual 50 per cent pool balance reduces by the asset's share of the disposal value at face amount.

Connected-party disposal-value substitution and intra-group transfers

Intra-group transfers of full-expensed plant between connected companies trigger the disposal-value substitution at CAA 2001 s.61 table item 2: the disposal value is the open market value of the asset at the time of the transfer, regardless of any actual consideration paid. The transferee company does not get a fresh full-expensing claim on the receiving side because the plant fails the unused-and-not-second-hand test at s.45S(1)(c) on intra-group acquisition.

The combined effect of an intra-group transfer of full-expensed plant is: a balancing charge in the transferor company in the chargeable period of transfer, equal to the open market value of the asset (because the asset's AQE in the transferor's pool is nil following the original full-expensing claim); and a slow pool write-down in the transferee company on the substituted market value at the standard 18 per cent reducing-balance WDA from the period of acquisition. There is no general intra-group relief from the FYA disposal-value clawback for genuine commercial restructuring; the s.61 connected-party rules apply regardless of the operating reason for the transfer.

For property HoldCo groups planning intra-group plant transfers as part of an extraction or restructuring exercise (the kind of transfer covered in our cross-bucket sibling page on multi-company group extraction mechanics), the disposal-value substitution is a material modelling input. A property SPV that has claimed £500,000 of full expensing on plant in year one, then transfers the plant to a sister SPV at year three at an unchanged market value of £500,000, faces a £500,000 balancing charge in the transferor's year-three corporation tax computation. The relief that landed in year one comes back in year three; the transferee then writes down the £500,000 at 18 per cent over many years.

Practical mistakes to avoid

The full-expensing cluster generates a recurring set of errors, mostly around the eligibility conditions and the disposal-value treatment.

Claiming full expensing on used or second-hand plant. s.45S(1)(c) requires both unused AND not second-hand. Plant from a connected company, plant from a third-party supplier that has had prior owners, and plant from any source that has been used somewhere before all fail. Used plant goes to AIA or the pools.

Claiming full expensing on plant clearly within s.46(4) leasing-out scope. Plant let separately to an occupant under a chattels lease is outside s.45S. The Autumn Budget 2024 extension is announced but pending commencement; do not assume it is in force.

Assuming individuals or partnerships can use full expensing. s.45S(1)(b) is companies-only. Sole-trader landlords and partnerships of individual landlords use AIA and the pools. Incorporation is a serious decision with annual corporation tax consequences; choosing it specifically to access full expensing on one refurbishment is rarely the right call without broader analysis.

Forgetting the £1 million AIA is a group cap. AIA is shared across associated companies under CAA 2001 s.51E + s.51G; a HoldCo plus three SPVs may share one £1 million, not have four. The full-expensing route covers excess unused main-rate spend above the cap but does not multiply the cap itself. Bucket sibling page C4 on AIA associated-companies sharing covers the allocation question.

Modelling full-expensing as carrying a super-deduction-style 1.3x clawback on disposal. Full expensing recovers at 1.0x, not 1.3x. The 1.3x uplift was a super-deduction-specific provision (FA 2021 Sch 10) and applied only to assets in the 1 April 2021 to 31 March 2023 operative window. Bucket sibling page C10 covers the historic super-deduction clawback in detail.

Treating intra-group transfers as cost-neutral for capital-allowance purposes. The s.61 connected-party disposal-value substitution applies open market value regardless of actual consideration. A £500k full-expensed asset transferred intra-group at nil consideration still generates a £500k balancing charge in the transferor; the transferee writes the substituted MV down at the standard rate, not as fresh full expensing.

Confusing s.45S with the historic super-deduction. Super-deduction (FA 2021 ss.9-10) was 130 per cent on main-rate plant, 50 per cent on special-rate, 1 April 2021 to 31 March 2023 only, with a 1.3x and 0.5x disposal-value uplift on clawback. Full expensing (CAA 2001 s.45S, F(No.2)A 2023 insertion) is 100 per cent on main-rate, 50 per cent companion on special-rate, from 1 April 2023 with no sunset, with a 1.0x disposal-value mechanism. Anyone presenting super-deduction as a current route is reading pre-2023 material.

Sources and statutory references

  1. Capital Allowances Act 2001, section 45S (Full expensing: 100% main-rate FYA, companies only, unused only, post-1 April 2023).
  2. Capital Allowances Act 2001, section 45T (Disqualifying arrangements exclusion from full expensing).
  3. Capital Allowances Act 2001, section 46 (General exclusions from FYA eligibility; s.46(4) leasing-out exclusion).
  4. Capital Allowances Act 2001, section 33A (Integral features: special-rate expenditure).
  5. Capital Allowances Act 2001, section 61 (Disposal events and disposal values; connected-party MV substitution at item 2).
  6. Finance (No. 2) Act 2023, 2023 c. 30 (insertion of CAA 2001 s.45S and the 50% special-rate FYA companion; AIA £1m permanent at s.8).
  7. HMRC Capital Allowances Manual, CA23230 (Full expensing and 50% special-rate FYA).
  8. Gov.uk public guidance, Capital allowances: first-year allowances.

Related reading on this site: bucket sibling pages C1 (the four-axis CAA 2001 decision framework pillar); C2 (disposal mechanics: AQE vs TDR, the s.61 event taxonomy, the SBA contrast); C3 (SBA depth: the building-shell counterpart to full expensing on plant); C4 (AIA + associated-companies sharing); C6 (commercial property fixtures and s.198 election); C10 (super-deduction historic 1.3x clawback). Cross-bucket: A7 (HoldCo extraction mechanics, including intra-group plant transfer corporate-tax consequences; forward-link, manager back-patches at wave merge). Adjacent existing pages: Full Expensing Capital Allowances: legacy entry-level page (pre-FA(No.2)2023 framing; update recommended post-launch).