Full expensing is a capital allowance that allows companies to deduct 100% of the cost of qualifying plant and machinery from their profits before tax in the year the asset was bought [1]. For UK property investors operating through a limited company, this can be a powerful tax relief. This guide explains how full expensing works, who can claim it, and what it means for your property business.
What Is Full Expensing?
Full expensing is a 100% first-year capital allowance introduced for companies from 1 April 2023 [2]. It replaced the super-deduction, which was available from 1 April 2021 to 31 March 2023 [2]. The relief allows you to write off the entire cost of qualifying plant and machinery against your taxable profits in the year you buy it.
There is also a 50% first-year allowance for assets that fall into the special rate pool, such as integral features and long-life assets [1]. You cannot claim both allowances against the same expenditure [1].
Who Can Claim Full Expensing?
Only companies can claim full expensing and the 50% first-year allowance [1]. This means sole traders, partnerships, and limited liability partnerships (LLPs) cannot use this relief [2]. If you are a sole trader or partnership using the cash basis, you can only claim capital allowances on business cars [3].
For property investors, this makes full expensing particularly relevant if you have incorporated your buy-to-let portfolio into a limited company. If you are considering incorporation, our guide on buy-to-let limited companies explains the process and tax implications.
What Assets Qualify for Full Expensing?
To claim full expensing or the 50% first-year allowance, the plant and machinery must be new and unused and not be a car [1]. The asset must also have been bought from 1 April 2023 [1]. Qualifying assets include computers, office furniture, machinery, and most plant and equipment used in your property business [2].
For property investors, this could cover items such as:
- Heating and cooling systems (if not integral features)
- Security systems
- Office equipment for managing your portfolio
- Tools and equipment used by maintenance staff
However, there are important exclusions. Full expensing is not available for cars, second-hand assets, assets held for leasing, gifted assets, ships, railway assets, connected person transfers, special rate pool assets (including integral features, thermal insulation, and long-life assets) [4].
What Is the 50% First-Year Allowance?
For assets that would otherwise be included in the special rate pool, a 50% first-year allowance is available instead of the 100% deduction [4]. This applies to integral features such as lifts, escalators, electrical systems, and cold water systems. It also covers long-life assets (those with a useful life of more than 50 years) and thermal insulation [2].
The 50% allowance lets you deduct half the cost from your profits in the year of purchase, with the remaining balance entering the special rate pool for future writing-down allowances [1].
How Does Full Expensing Interact with Corporation Tax?
With the corporation tax rate now at up to 25%, each pound of qualifying expenditure saves tax of 25p [4]. This makes full expensing a valuable relief for companies paying the main rate of corporation tax. For companies with profits under £250,000, the small profits rate of 19% applies, meaning each pound saves 19p.
If you are a property investor operating through a limited company, understanding how full expensing fits with your overall tax position is essential. Our property accountant services can help you maximise these reliefs.
What Happens When You Sell the Asset?
There is an immediate balancing charge when the asset is disposed of [4]. If you claimed the 100% first-year allowance, the balancing charge is equal to 100% of the proceeds. If you claimed the 50% first-year allowance, the charge is 50% of the proceeds [4]. This means the tax relief is effectively clawed back on disposal, so you need to plan for this.
For property investors, this is particularly relevant if you sell a property that includes qualifying plant and machinery. The disposal proceeds must be accounted for, and the balancing charge will increase your taxable profits in the year of sale.
Full Expensing vs Annual Investment Allowance (AIA)
The annual investment allowance (AIA) allows you to claim up to £1 million on certain plant and machinery [3]. Unlike full expensing, the AIA is available to unincorporated businesses as well as companies. However, the AIA has a cap, whereas full expensing has no upper limit on qualifying expenditure.
For companies, full expensing is generally more generous because it provides 100% relief without a cap. However, the AIA remains useful for assets that do not qualify for full expensing, such as second-hand plant and machinery.
Full Expensing and Property Development
Property developers operating through a limited company can benefit from full expensing on plant and machinery used in their development activities. This includes equipment such as excavators, concrete mixers, and scaffolding. However, the assets must be new and unused, and they must not be held for leasing [4].
If you are a developer, you should also consider the distinction between trading income and capital gains. Our guide on capital gains tax on property explains how disposals are taxed.
Full Expensing and Furnished Holiday Lettings
The Furnished Holiday Lettings (FHL) regime was abolished from April 2025. This means that properties previously qualifying as FHLs are now treated as standard rental properties. For companies owning such properties, full expensing may still be available on qualifying plant and machinery used in the property, provided the asset is not held for leasing.
However, the leasing exclusion is a key consideration. If the property is let to tenants, the plant and machinery may be considered as held for leasing, which would disqualify it from full expensing [4]. Specialist advice is recommended in these cases.
How to Claim Full Expensing
To claim full expensing, you include the qualifying expenditure in your company tax return. You do not need to make a separate claim; the relief is automatically applied when you complete the capital allowances section of the return. HMRC provides guidance on how to calculate and report the allowances [1].
It is important to keep detailed records of the assets purchased, including invoices, dates of purchase, and descriptions of the items. This will support your claim in the event of an HMRC enquiry.
Future of Full Expensing
The government confirmed a continuation of the existing full expensing measures for the duration of the current Parliament [5]. This means the relief is available for expenditure incurred from 1 April 2023 until at least 31 March 2026 [2]. Beyond that date, the government has indicated it intends to make the relief permanent, but legislation has not yet been passed [5].
From 1 January 2026, a 40% first-year allowance will be available for qualifying plant and machinery purchased after that date [3]. This is separate from full expensing and applies to assets that do not qualify for the 100% or 50% allowances.
Common Mistakes to Avoid
One common mistake is claiming full expensing on assets that do not qualify. For example, claiming on cars, second-hand assets, or assets held for leasing will result in HMRC disallowing the claim [4]. Another mistake is failing to account for the balancing charge on disposal, which can lead to underpaid tax.
Property investors should also be aware that full expensing is only available to companies. If you are a sole trader or partnership, you cannot claim this relief. Instead, you may be able to claim the annual investment allowance or writing-down allowances.
Getting Professional Advice
Full expensing can be a valuable relief for property companies, but the rules are complex. The exclusions, balancing charges, and interaction with other allowances require careful planning. A specialist property accountant can help you identify qualifying expenditure, maximise your claims, and ensure compliance with HMRC requirements.
If you are considering incorporating your property portfolio, our incorporation guide explains the process and tax implications. For personalised advice, contact our team to discuss your situation.
Frequently Asked Questions
Sources
- gov.uk: Claim capital allowances: Full expensing and 50% first-year allowance
- icaew.com: A lowdown on full expensing for SMEs - ICAEW.com
- aka.hmrc.gov.uk: Claim capital allowances: Overview - GOV.UK
- accaglobal.com: Full expensing, exclusions to the claim | ACCA Global
- taxscape.deloitte.com: Deloitte | Capital allowances, permanent full expensing maintained...