If you are reconstructing a 2024/25 capital-allowances claim, checking a return you have already filed before the amendment window shuts, or trying to square guidance written "for 2024/25" against the rules today, the figure that anchors everything is this: the Annual Investment Allowance (AIA) gave 100% first-year relief on qualifying plant and machinery up to £1 million for 2024/25. The cap is the easy part. The traps are in who could claim, what counted, and how much of it has moved since.
The evergreen mechanics of who can claim and how AIA works in any year sit in the Annual Investment Allowance for UK property investors guide. The current-year position and the full 1 January 2026 to 6 April 2026 transition timeline are in the 2025/26 AIA guide. What follows fixes the 2024/25 position and tracks what changed afterwards, so you can tell at a glance whether what was true then is still true now.
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Annual Investment Allowance 2024/25 at a glance
For 2024/25 the headline numbers were stable. AIA gave 100% first-year relief on qualifying plant and machinery up to a permanent cap of £1 million, set by CAA 2001 section 51A(5) ("The maximum allowance is £1,000,000"). That cap had been made permanent by Finance (No. 2) Act 2023 section 8 from 1 April 2023 for companies and 6 April 2023 for unincorporated businesses, which ended years of uncertainty about a reversion to £200,000. Spend within the £1 million was written off in full against profits in the year you incurred it, rather than spread over several years through writing-down allowances.
Here is the clean before-and-after: the 2024/25 position against where each point sits today, with the statute behind each line.
| Point | 2024/25 position | What has changed since | Statutory basis |
|---|---|---|---|
| AIA cap | £1,000,000 (permanent) | Unchanged at £1,000,000 | CAA 2001 s.51A(5); F(No.2)A 2023 s.8 |
| Main pool WDA | 18% per year | Cut to 14% from April 2026 | CAA 2001 s.56(1); FA 2026 s.28 |
| Special rate pool WDA | 6% per year | Unchanged at 6% | CAA 2001 s.104D |
| Furnished holiday lettings | Still a qualifying activity for AIA (the last clean year) | Regime abolished from April 2025 | FA 2025 Sch 5 Part 3 |
| 40% first-year allowance | Did not exist | Introduced from 1 January 2026 | FA 2026 s.29; CAA 2001 s.45U |
| Full expensing (companies) | 100%, company-only | Unchanged, company-only | CAA 2001 s.45S |
| Cars | Excluded from AIA; pooled by emissions | Unchanged (excluded from AIA and the 40% FYA) | CAA 2001 s.38B |
Capital allowances on investment property in the UK: who could claim AIA in 2024/25
The central rule that shaped every property AIA claim in 2024/25 is the dwelling-house bar. CAA 2001 section 35(2) provides that a person's expenditure is not qualifying expenditure if it is incurred on providing plant or machinery for use in a dwelling-house within a property business. A standard buy-to-let house or flat is a dwelling-house, so the fittings inside it (the boiler, the bathroom, the fitted kitchen) did not attract AIA. This is the single most misunderstood point in property capital allowances, and it applied equally whether you let personally or through a company.
Where AIA did reach property businesses in 2024/25 was:
- Commercial property letting, such as shops, offices, warehouses and industrial units. Plant and integral features serving commercial premises are not in a dwelling-house, so they could qualify.
- Furnished holiday lettings, which still qualified in 2024/25 as a deemed trade with its own capital allowances treatment. This was the last full tax year in which FHLs sat outside the dwelling-house bar.
- Mixed-use property, where the commercial element could qualify even though the residential element could not. The apportionment between the two is a matter of fact and evidence.
- Common parts of multi-let buildings, such as the shared hallways, stairwells and central plant of a block of flats or an HMO, which are generally not part of any single dwelling-house.
The eligibility question for landlords specifically is worked through in whether landlords can claim the Annual Investment Allowance. The HMO and block-of-flats line, which turns on the meaning of a dwelling-house, is covered in HMO common-parts capital allowances and the section 35 claim mechanics.
What counted as plant and machinery in 2024/25
Plant and machinery is a broad category with firm edges. It does not include land or the building structure. You could not claim AIA on the purchase price of a property or on the cost of constructing the shell. What could qualify, where the wider activity qualified, was the plant and machinery within the building.
Qualifying items typically included integral features under CAA 2001 section 33A (the five statutory categories: electrical and lighting systems, cold water systems, space and water heating and ventilation, lifts and escalators, and external solar shading), loose plant and machinery, and equipment used in the business. Integral features sit in the special rate pool, which wrote down at 6% to the extent it exceeded any AIA claimed against it, so the order in which AIA is allocated across pools matters.
The categories and exclusions above were unchanged in 2024/25. What moved afterwards were the rates and the arrival of a new allowance, both dealt with below. The full treatment of what qualifies in any year is in the Annual Investment Allowance guide and the capital allowances for property investors guide.
The £1 million cap and the single-allowance rule
The £1 million cap applies per business, not per property. If you hold several commercial units, you aggregate qualifying expenditure across the whole property business and test it against one £1 million limit. The cap is proportionately adjusted only where the chargeable period is longer or shorter than 12 months, under section 51A(6).
Where ownership is more layered, the single-allowance rules bite. Under CAA 2001 sections 51B to 51N, companies that are related (through common control, or through shared premises or similar activities) do not each get a full £1 million. They share a single allowance and must allocate it between them. The same logic constrains how individuals and partnerships with controlling links between their businesses allocate the cap. This is easy to overlook when a portfolio is spread across several SPVs, and getting the allocation wrong can mean a clawback.
The allocation across a group, and the precise association tests, are a specialist topic in their own right, worked through in the £1 million AIA cap, allocation strategy and association rules. For 2024/25 the rule to hold in mind is simple: the cap was £1 million per business, shared where the association rules applied.
How AIA interacted with Section 24 in 2024/25
AIA is a capital allowance, not a revenue expense. It is given as a deduction in the capital allowances computation and reduces the taxable profit of a qualifying business directly. That is a different mechanism from the Section 24 finance-cost restriction, which since 6 April 2020 has limited relief on residential mortgage interest to a basic-rate (20%) tax reducer rather than a deduction from profit.
Because AIA only ever applied to commercial, FHL or common-parts activity, never to the residential lettings that Section 24 targets, the two rules generally operated on different parts of a mixed portfolio. AIA reduced the profit of the qualifying (often commercial) part; Section 24 restricted interest relief on the residential part. If you run both, separating the two activities cleanly in your records is what keeps each rule applied correctly. The complete guide to Section 24 sets out how the finance-cost restriction works now.
What carried into 2025/26
Two things carried forward unchanged from 2024/25 into 2025/26: the £1 million AIA cap and the special rate pool at 6%. The headline change for property businesses was the abolition of the furnished holiday lettings regime.
Finance Act 2025 Schedule 5 Part 3 removed the special FHL treatment that had classed qualifying holiday accommodation as a deemed trade, omitting the FHL limbs from the qualifying-activity gateway in CAA 2001 section 15. The income tax changes have effect for the 2025-26 tax year onwards, and the corporation tax changes for accounting periods beginning on or after 1 April 2025. From those dates, former FHL properties fall into the ordinary property business and are caught by the section 35 dwelling-house bar, so no new AIA is available on plant inside them.
Plant already pooled before abolition is not lost. Existing pools continue to attract writing-down allowances within the now-ordinary property business; the regime change stops new qualifying expenditure rather than stripping out historic allowances. The transitional mechanics, including how grandfathered pools are carried forward, are covered in FHL capital allowances after April 2025 and grandfathered claims. The blunt point: if you ran an FHL in 2024/25, that year was the last clean window to make a fresh AIA claim on holiday-let plant, which is exactly why getting an amendment in on time matters. The complete 2025/26 picture is in the 2025/26 AIA guide.
What changed from April 2026: the writing-down allowance cut
The most significant rate change since 2024/25 is the cut to the main pool writing-down allowance. Finance Act 2026 section 28 reduced the main pool rate from 18% to 14% per year. CAA 2001 section 56(1) now reads 14%, annotated on legislation.gov.uk as substituted by Finance Act 2026 section 28(1). Finance Act 2026 received Royal Assent on 18 March 2026, so this is enacted law, not a proposal.
The change takes effect from 1 April 2026 for corporation tax and 6 April 2026 for income tax. For a chargeable period that straddles the start date, a hybrid time-apportioned rate applies under section 28(2) to (6), blending 18% and 14% in proportion to the days before and after the change. The special rate pool is unchanged at 6% under section 104D; guidance suggesting it falls to 4% is wrong.
This matters wherever qualifying expenditure exceeds the £1 million AIA cap, because the excess writes down at these pool rates rather than getting 100% relief, and the slower 14% rate stretches that relief over a longer period. It also matters for cars, which are excluded from AIA and sit in the pools by emissions. The full detail of the rate change and the straddling calculation is in the guide to writing-down allowance rates.
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The new 40% first-year allowance (from 1 January 2026)
The change you will not have met in 2024/25 is the 40% first-year allowance. Finance Act 2026 section 29 introduced a 40% FYA on new and unused main-rate plant and machinery for expenditure incurred from 1 January 2026. The 40% rate is set by section 29 (through the first-year allowance table in CAA 2001 section 52); the qualifying conditions are set out in the inserted CAA 2001 section 45U, which requires the expenditure to be incurred on or after 1 January 2026 on unused, not second-hand main-rate plant and not to be caught by the section 45V disqualifying-arrangements rule or the general exclusions in section 46.
The point that trips people up is who can use it. Section 45U sets no incorporation test: the 40% FYA is available to qualifying persons generally. In practice, though, it is the route for unincorporated businesses (sole traders, partnerships and individual landlords) and for assets bought for leasing, because a company spending on the same new main-rate plant will normally claim 100% full expensing under CAA 2001 section 45S instead. Full expensing is restricted to companies within the charge to corporation tax and is unavailable for leasing, so the 40% FYA fills the gap that full expensing leaves; it is not a relief from which companies are barred. The contrast with company-only full expensing is set out in the guide to full expensing and first-year allowances for commercial property.
The exclusions are important. The 40% FYA does not apply to cars, to second-hand or used assets, or to assets for overseas leasing. And, critically for property, the section 35 dwelling-house bar still applies, so it does not unlock relief on plant inside a residential dwelling. It is most relevant to commercial property plant, the common parts of multi-let buildings, and the leasing of qualifying assets. If your company has already used its full expensing, or you run unincorporated and have used your £1 million AIA, the 40% FYA can give a meaningful first-year deduction on additional qualifying spend.
Amending a 2024/25 return: claiming AIA in time
2024/25 was the last clean year for FHL plant, and property capital-allowances claims are easy to miss on a self-filed return, so the timing is worth getting right. Capital allowances, including AIA, are claimed in the return computation; there is no standalone AIA form. If you filed a 2024/25 return without a valid claim you should have made, the route back depends on which window is still open.
For a Self Assessment return, you can amend it within 12 months of the filing deadline under TMA 1970 section 9ZA. For a 2024/25 return due on 31 January 2026, that means the amendment window runs to 31 January 2027. A company amends its CT600 within 12 months of the statutory filing date under FA 1998 Schedule 18 paragraph 15. Once the amendment window has closed, the out-of-time route is an overpayment relief claim under TMA 1970 Schedule 1AB, made within the ordinary four-year time limit in TMA 1970 section 34, which for 2024/25 means by 5 April 2029.
The 12-month amendment window and the four-year out-of-time route are not interchangeable: an in-time amendment simply corrects the return, while overpayment relief is a separate claim with its own conditions and is not available in every case. The windows for a 2024/25 capital-allowances claim are:
| Situation | Route | Deadline | Statutory basis |
|---|---|---|---|
| 2024/25 SA return, amendment window open | Amend the return (correct the capital-allowances computation) | 12 months after the filing deadline (by 31 January 2027 for a return due 31 January 2026) | TMA 1970 s.9ZA |
| 2024/25 company (CT600), amendment window open | Amend the company return | 12 months from the statutory filing date | FA 1998 Sch 18 para 15 |
| Amendment window closed, valid claim missed | Overpayment relief claim | Within four years of the end of the tax year (by 5 April 2029 for 2024/25) | TMA 1970 s.34 and Sch 1AB |
| FHL plant pooled before April 2025 | Continues writing down in the ordinary property business pool | Ongoing (no new FHL plant and machinery qualifies after commencement) | FA 2025 Sch 5 Part 3 |
Worked examples
These examples use anonymised, illustrative figures to show how the rules apply. They are not advice on your own position.
Example 1: commercial unit, AIA in 2024/25. You let a commercial retail unit. In 2024/25 you spend £25,000 on a new heating system and £15,000 on electrical upgrades, both qualifying plant and machinery in commercial premises. You can claim the full £40,000 as an AIA deduction against the rental business profit. If the profit before the claim is £60,000, it reduces to £20,000. The cash value of a deduction tracks your marginal rate: at a 40% marginal rate the £40,000 deduction is worth up to £16,000, and from 2027/28 the separate property income rates enacted in Finance Act 2026 (22% basic, 42% higher, 47% additional, for England, Wales and Northern Ireland) mean an equivalent deduction is worth more at the higher property rates. The relief is illustrative only and depends on your rate and other income.
Example 2: unincorporated landlord, AIA cap used, spend after 1 January 2026. You run a commercial portfolio as a sole trader and have already used the full £1 million AIA in the year on a large refurbishment. In February 2026 you incur a further £100,000 on new and unused qualifying main-rate plant for a commercial unit. AIA is exhausted, and full expensing is not available to you, because you are not a company. The 40% first-year allowance under FA 2026 section 29 applies because the spend is from 1 January 2026, the assets are new and unused, and they are not cars, second-hand or for overseas leasing. You claim a 40% first-year deduction of £40,000, with the remaining £60,000 entering the main pool to write down at 14% from April 2026.
Example 3: a straddling period and the hybrid WDA rate. A company has a 12-month accounting period running from 1 January 2026 to 31 December 2026. The main pool writing-down allowance change takes effect for corporation tax from 1 April 2026. Roughly three months of the period fall before the change at 18% and nine months after it at 14%, so a hybrid rate of around 15% applies to the pool for that period, calculated by time-apportioning the days before and after 1 April 2026. The exact figure depends on the day count and is set out in the writing-down allowance guide linked above.
Example 4: a missed 2024/25 claim, amended in time. You fitted out a commercial unit in 2024/25 at a qualifying cost of £30,000 but filed the 2024/25 return without claiming AIA. The return was due on 31 January 2026, so the amendment window under TMA 1970 section 9ZA runs to 31 January 2027. You amend the return inside that window, add the £30,000 AIA deduction to the capital-allowances computation, and the corrected return recovers the relief without needing an overpayment relief claim. Had the amendment window already closed, the claim would instead have run through TMA 1970 Schedule 1AB by 5 April 2029.
How to claim and keep records
The claim mechanics did not change. AIA is claimed within the capital allowances computation that forms part of your tax return: the Self Assessment return (SA103 for sole traders, SA104 for partnerships) if you let unincorporated, and the company tax return (CT600) if you let through a company. There is no separate AIA application form; you calculate the qualifying expenditure and claim it in the computation.
Good records are what make a claim defensible: dated invoices, an asset schedule identifying each item and its pool, and, for property, evidence of the apportionment between qualifying plant and the non-qualifying building structure or dwelling-house element. The step-by-step for any year is in the Annual Investment Allowance guide.
Common mistakes (2024/25 and beyond)
- Claiming AIA on residential dwelling plant. The section 35(2) dwelling-house bar means the boiler, bathroom and fitted kitchen of a standard buy-to-let do not qualify. This is the most common error in property capital allowances.
- Including building or purchase costs. AIA covers plant and machinery only, never the land, the building shell or the purchase price.
- Assuming FHLs still qualify. They did in 2024/25, but the regime was abolished by Finance Act 2025 Schedule 5 from April 2025. New FHL plant no longer attracts AIA.
- Overlooking the 40% first-year allowance. For qualifying spend from 1 January 2026, unincorporated businesses and leasing now have a route that did not exist in 2024/25. It is easy to default to AIA or the pools and miss it; companies will usually reach for full expensing first, but the 40% FYA is not closed to them.
- Treating a car as AIA-qualifying. Cars are excluded from both AIA and the 40% FYA and go through the pools by emissions.
- Forgetting the single-allowance rule. Related companies and connected businesses share one £1 million cap under sections 51B to 51N; they do not each get a full £1 million.
- Letting the amendment window close. A 2024/25 AIA claim missed on a filed return can usually still be recovered by amending within 12 months of the filing deadline; leaving it past that pushes you into the slower overpayment relief route.
Where AIA fits in the wider capital-allowances picture
Which allowance to use (AIA, the writing-down pools, full expensing for companies, or the new 40% first-year allowance for the unincorporated and for leasing) depends on your structure, your spend, and whether the £1 million cap is already used. The full decision framework under CAA 2001 is in the capital allowances for property investors guide. For the current year, the 2025/26 AIA guide picks up where this leaves off. Between the two, you can see both what was true in the year you are reviewing and how the rules have moved since.
Frequently Asked Questions
Below are answers to common questions about the Annual Investment Allowance for the 2024/25 tax year and how the position has changed since.