The real question behind "full expensing capital allowances" is not what the relief is, but whether you can actually use it. The short answer: full expensing is a 100% first-year deduction for companies only (CAA 2001 s.45S), and even then it does not reach plant inside a let dwelling. If you hold property personally, or your plant sits in a residential flat, full expensing is closed to you. You are not stuck, though. There are other routes, including the new 40% first-year allowance from January 2026, and your right one turns on how you hold the property and what the plant is for. For the wider picture of how the reliefs fit a property portfolio, see our capital allowances decision framework for property investors.
Which capital allowance route applies to you?
Three things decide your capital allowances on property, all at once: your entity (company or unincorporated), your property type (commercial, a residential dwelling, or the common parts of a multi-let), and the use of the asset (used in your own qualifying activity, or held for leasing). Find your row, then read the detail underneath.
| Your situation | Plant in a commercial property (own use) | Plant in a let dwelling (flat or house) | Plant in common parts of a block or HMO |
|---|---|---|---|
| Company (within charge to CT) | Full expensing (100% FYA, s.45S) on new and unused main-rate plant; 50% FYA on special-rate items; AIA and WDA otherwise | Barred by s.35 (no P&M allowances on plant in a dwelling-house) | AIA (£1m) and WDA on qualifying common-parts plant; full expensing if the plant is new, unused and not held for leasing |
| Sole trader / partnership / individual landlord | AIA (£1m); 40% FYA (s.45U) on new and unused main-rate plant from 1 Jan 2026; WDA otherwise | Barred by s.35 | AIA (£1m); 40% FYA (s.45U) on qualifying common-parts plant; WDA otherwise |
| Plant held for leasing out | Full expensing (s.45S) is blocked by the s.46 leasing exclusion, but the 40% FYA (s.45U) can still reach plant leased to a lessee who uses it wholly or almost wholly for taxable-income purposes, under the s.46(4B) exception; AIA and WDA may also apply | ||
Three lines do most of the work. Only companies claim full expensing. Plant inside a dwelling is barred for everyone (s.35). And the new 40% first-year allowance is the unincorporated route, not a company fallback. Each branch is worked through below.
What is full expensing, in plain terms?
Full expensing is a 100% first-year allowance under CAA 2001 s.45S. It lets a company within the charge to corporation tax deduct the entire cost of qualifying plant and machinery from its taxable profits in the year of purchase, with no upper limit. To qualify, the expenditure must be incurred on or after 1 April 2023, by a company within the charge to corporation tax, on plant or machinery that is unused and not second-hand, and not caught by the disqualifying-arrangements rule in s.45T or the general exclusions in s.46 (which exclude cars and plant held for leasing).
A companion 50% first-year allowance applies to special rate expenditure, such as integral features and long-life assets, that would otherwise be written down slowly in the special rate pool. You cannot claim both allowances against the same expenditure.
Full expensing is permanent. The section as enacted has no sunset clause, and permanence was confirmed at Autumn Statement 2023 and again at Autumn Budget 2024. Any source still describing it as temporary, or as expiring on 31 March 2026, is out of date. If you need the detailed s.45S mechanics, the disposal-value clawback, the leasing question and the anti-avoidance rules, our guide on full expensing and the 50% FYA for commercial property companies goes there in full.
Who can actually claim it?
Full expensing is restricted to companies within the charge to corporation tax. Sole traders, partnerships and limited liability partnerships cannot use it, and neither can you if you hold buy-to-let property in your own name. This is where most property investors fall out of the relief, because the majority of UK rental property is still held personally.
Say you hold two flats personally. You cannot claim full expensing on anything, full stop, because you are not a company. Your capital-allowance routes are the annual investment allowance, writing-down allowances, and from January 2026 the new 40% first-year allowance, all subject to the dwelling-house bar set out below. Run the identical portfolio through a limited company and full expensing is available in principle, though the dwelling-house bar would still block most of the plant inside the flats themselves.
Because the entity choice is what unlocks (or blocks) full expensing, you cannot separate it from the wider incorporation decision. Our guide to running a buy-to-let limited company sets out the stamp duty, capital gains and ongoing cost trade-offs that should drive that call. Full expensing is one input, not the reason to incorporate.
The residential dwelling-house bar: section 35
This is the section most generic full-expensing guides skip, and for a property investor it is the one that matters most. CAA 2001 s.35 removes plant and machinery used in a dwelling-house from the definition of qualifying activity for an ordinary property business. In plain terms, you cannot claim capital allowances (full expensing, the 50% FYA, the AIA or the 40% FYA) on a boiler, a fitted kitchen, a bathroom suite or white goods installed for use inside a let flat or house. That holds whether you trade as a company or in your own name.
The narrow exception is plant in the communal common parts of a multi-let building. A block boiler that heats the common hallways, a lift, communal lighting and a communal entry system serve the building rather than any single dwelling, so they fall outside the s.35 bar and can qualify for allowances. Through a company, that opens the door to full expensing on new and unused common-parts plant; unincorporated, the AIA or the 40% FYA applies instead. For how to build that claim, see our guide to HMO common-parts capital allowances and the s.35 claim mechanics.
One related change: the Furnished Holiday Lettings regime, which used to give a separate route to plant and machinery allowances inside the holiday let, was abolished from 6 April 2025 (1 April 2025 for corporation tax) by Finance Act 2025 Schedule 5. FHLs are no longer a qualifying activity, so former holiday lets now fall under the ordinary s.35 bar like any other dwelling.
If you cannot use full expensing: the 40% first-year allowance
If you are unincorporated, the route built for you is the new 40% first-year allowance. Finance Act 2026 s.29 inserts CAA 2001 s.45U, giving a 40% first-year deduction on main-rate plant and machinery for expenditure incurred on or after 1 January 2026. It applies in cases not falling within full expensing (s.45S), which is the deliberate design point: it reaches the sole traders, partnerships and individual landlords that the company-only full-expensing rules cannot.
The plant must be new and unused. Second-hand assets are excluded, special rate expenditure is excluded (so integral features do not get the 40% rate), and the general exclusions in s.46 still bite for cars. On leasing, the 40% FYA differs from full expensing: under the s.46(4B) exception it does reach plant leased to a lessee who uses it wholly or almost wholly for taxable-income purposes (the leased-plant case full expensing cannot reach). Read it for what it is: the unincorporated and main-rate route, not a residual fallback for company assets that fail the 100% full-expensing test.
If you are unincorporated, the 40% FYA sits alongside two longer-standing reliefs. The annual investment allowance gives 100% relief on up to £1 million of qualifying plant a year and is open to both companies and unincorporated businesses. For how it applies to your lettings, see our guide to the annual investment allowance for landlords and the broader annual investment allowance rules. Anything not relieved by a first-year allowance or the AIA is written down through the pools.
Full expensing, AIA, the 40% FYA and WDA: how they fit together
These four reliefs are not alternatives you choose freely; each has its own gateway, and they layer in a set order. The practical question is which one delivers the relief for a given asset.
- Full expensing (s.45S): companies only, 100% in year one, new and unused main-rate plant, no annual cap.
- 50% FYA: companies only, on special-rate expenditure (integral features, long-life assets), with the balance to the special rate pool.
- Annual investment allowance: companies and unincorporated businesses, 100% on up to £1 million a year, covers most plant including special-rate items, subject to s.35.
- 40% FYA (s.45U): the unincorporated and main-rate route, new and unused, from 1 January 2026, no cars or second-hand assets (but, unlike full expensing, plant leased to a qualifying taxable-income lessee can qualify, via the s.46(4B) exception).
- Writing-down allowances: the catch-all for expenditure that does not, or cannot, get a first-year allowance or the AIA. From Finance Act 2026 s.28 the main pool rate is 14% (down from 18%, for chargeable periods beginning on or after 1 April 2026 for corporation tax and 6 April 2026 for income tax), and the special rate pool stays at 6%.
A company spending under the £1 million AIA limit on new main-rate plant often gets the same year-one result whether it labels the claim full expensing or AIA. Full expensing earns its place above the cap, or where the company wants to keep the AIA free for second-hand or special-rate items. For how the pools work once first-year reliefs are exhausted, see our guide to writing-down allowance rates.
Corporation tax: what the relief actually saves
Because full expensing reduces taxable profits pound for pound, the cash value of the relief is the profit saved multiplied by the company's corporation tax rate. The current rates are the main rate of 25% on profits above £250,000, the small profits rate of 19% on profits under £50,000, and marginal relief tapering the effective rate between £50,000 and £250,000.
So a company paying the main rate saves 25p of tax for every pound of qualifying expenditure, while a small company at the 19% rate saves 19p. A common and costly error in older guidance is to say the 19% small profits rate applies to profits under £250,000; it does not. The £250,000 figure is the upper threshold above which the full 25% applies, not the small-profits ceiling.
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Where full expensing genuinely helps a property investor
Strip out the dwellings, and the case for full expensing comes down to a company holding commercial premises for its own qualifying activity: an office, a warehouse, a shop fit-out, or a trading business that owns its building. New and unused main-rate plant in those premises can be fully expensed, and special-rate integral features can take the 50% FYA.
The other live area is fixtures on the purchase of a commercial building. When commercial property changes hands, the buyer and seller can agree a s.198 election to fix the value transferred for fixtures already in the building, which then governs what the buyer can claim going forward. That is its own discipline, set out in our guide to claiming capital allowances on commercial property fixtures and the s.198 election. The full SPV-side mechanics, including the disposal clawback, sit in our guide to full expensing for commercial property companies.
A worked example: the communal boiler
Say you own a block of six flats and are weighing whether to keep it in personal ownership or move it into a company. The block needs a new communal boiler serving the shared hallways and common areas. The boiler is new and unused, and it is plant in the common parts, so the s.35 dwelling-house bar does not apply to it.
Held personally, you cannot touch full expensing, because you are not a company. Your routes for the communal boiler are the annual investment allowance (100% in year one, well within the £1 million cap), or, from 1 January 2026, the 40% first-year allowance under s.45U on this new and unused main-rate plant, with any balance written down at 14%.
Held in a company, the same communal boiler could be fully expensed at 100% under s.45S, since it is new, unused, main-rate plant used in the company's property business and not held out for separate leasing. Note what does not change: a new boiler or kitchen installed inside one of the individual flats stays barred by s.35 under either structure. The right route turns on your entity and on which part of the building the plant serves, not on the size of the spend alone.
Common mistakes to avoid
- Claiming full expensing as a sole trader or individual landlord. It is company-only (s.45S). Unincorporated businesses use the AIA, WDA, or the 40% FYA (s.45U) from January 2026.
- Claiming any first-year allowance or the AIA on plant inside a let dwelling. The s.35 dwelling-house bar blocks it; only common-parts and commercial plant qualify.
- Treating the 40% FYA as a company route. It is the unincorporated and main-rate route, not a residual fallback for company assets.
- Assuming full expensing is temporary. It is permanent, with no expiry date in s.45S.
- Using the wrong corporation tax band. The 19% small profits rate applies under £50,000, not under £250,000.
- Forgetting the disposal charge. Selling a fully expensed asset triggers a balancing charge that recovers the relief, so disposals need planning.
How to claim and what to keep
Capital allowances are claimed through the relevant tax return: a company tax return for full expensing and the 50% FYA, or the self-assessment return for the AIA, the 40% FYA and writing-down allowances. There is no separate application; the allowances are computed in the capital allowances section of the return. Keep invoices, purchase dates, and a clear description of each asset and where it is used in the property, because the entitlement to most of these reliefs (and especially the s.35 dwelling-house question) turns on exactly that detail in the event of an HMRC enquiry.
Sources
- legislation.gov.uk: Capital Allowances Act 2001, s.45S (full expensing, 100% first-year allowance, companies)
- legislation.gov.uk: Finance Act 2026, s.29 (inserts CAA 2001 s.45U, 40% first-year allowance, from 1 January 2026)
- legislation.gov.uk: Capital Allowances Act 2001, s.46 (general exclusions, cars and plant for leasing)
- legislation.gov.uk: Capital Allowances Act 2001, s.56 (writing-down allowance, 14% main pool from FA 2026 s.28)
- legislation.gov.uk: Capital Allowances Act 2001, s.51A (annual investment allowance, £1,000,000 permanent maximum)
- gov.uk: Claim capital allowances: full expensing and 50% first-year allowance