Annual Investment Allowance for UK Landlords: Who Can Actually Claim It

Can a UK landlord claim the annual investment allowance? Start with the dwelling-house bar

The short answer surprises most residential landlords: for an ordinary buy-to-let, you usually cannot claim the annual investment allowance (AIA) on the plant inside the let property at all. The boiler, the fitted kitchen, the bathroom suite, the white goods and the furniture in the flat or house you let out are blocked from plant-and-machinery allowances by the dwelling-house restriction in section 35 of the Capital Allowances Act 2001 ^[1].

That is the opposite of what a lot of online guidance implies, and it is the point to get right before you spend a penny. The AIA itself is generous. It gives a 100% tax deduction in the year of purchase on qualifying plant and machinery up to £1,000,000 per 12-month chargeable period ^[2]. Your catch is not the size of the allowance, it is whether the spend qualifies in the first place. For plant inside a let dwelling, it does not.

So the two questions that actually matter are: can you claim the AIA, and if not, what can you claim instead? The dwelling-house bar comes first, then the three narrow situations where you genuinely can claim, then the relief you use in its place. For the full CAA 2001 decision framework behind all of this, see our guide to capital allowances for property investors.

Why s.35 blocks plant-and-machinery allowances in a dwelling-house

Section 35 is headed "Expenditure on plant or machinery for use in dwelling-house not qualifying expenditure in certain cases". The operative rule, at s.35(2), is blunt: a person's expenditure "is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house" ^[1]. The bar applies to any property business, whether UK or overseas, and to special leasing of plant.

Because the expenditure is not qualifying expenditure, it never reaches the AIA, full expensing or writing-down allowances. There is nothing to claim. That is why the items you most often assume you can claim are exactly the items that are blocked when they sit inside a let dwelling:

• The boiler and central heating system serving the let flat or house
• The fitted kitchen, including units, worktops and built-in appliances
• The bathroom suite and sanitaryware
• White goods such as fridges, freezers, washing machines and dishwashers
• Free-standing and fitted furniture and furnishings in a furnished let

None of these qualify for the AIA when they are provided for use in a dwelling-house. The mistake is so common that it is worth being blunt: if you claim the AIA on a new boiler or a replacement kitchen inside an ordinary let dwelling, you are making an incorrect claim, and the relief is not available simply because the cost is genuine and capital in nature.

Section 35(3) does allow an apportionment where plant is used partly in a dwelling-house and partly elsewhere, so a fair split is possible where, for example, a heating system serves both a let flat and a non-dwelling area. The integral-features rules in s.33A (electrical systems, cold-water systems, space and water heating, lifts, external solar shading) still sit inside this framework, so an integral feature genuinely located in a non-dwelling area can qualify, while the same feature inside the dwelling cannot.

The three situations where a landlord can claim the AIA

The dwelling-house bar is wide, but it is not total. There are three situations where you genuinely can claim the AIA, because in each one the plant is not "for use in a dwelling-house".

(a) Communal common parts of a multi-let building

Where you let a block of flats or a house in multiple occupation, the communal areas are not a dwelling-house. Plant serving the common parts is therefore outside the s.35 bar and can qualify. Typical qualifying items include a communal boiler or heating plant serving the building rather than an individual flat, lifts, communal lighting, stairwell and corridor heating, fire and security systems in the common parts, and door-entry systems.

This is the carve-out that matters most if you hold a portfolio. Take a converted block of flats with a single communal boiler heating the stairwells and corridors and serving the hot-water supply to the building as a whole. The boiler serving the common parts falls outside s.35 and qualifies, even though an in-flat combi boiler in the same building would be barred. For the mechanics of these claims, including how to evidence the common-parts allocation, see our guide to HMO common-parts capital allowances and the s.35 claim mechanics.

(b) Commercial property, mixed-use commercial space and commercial SPVs

Commercial property is not a dwelling-house, so the s.35 bar does not bite. Plant, integral features and fixtures in offices, shops, warehouses, surgeries and other commercial space can qualify for the AIA up to the £1,000,000 cap, subject to the usual buildings exclusion in s.21 and the integral-features rules in s.33A. A mixed-use building is apportioned: the commercial part can qualify while the dwelling part is barred.

A worked example shows the difference. Suppose a company SPV buys a high-street building with a shop on the ground floor and two flats above, and spends £180,000 fitting out the shop with new air-conditioning, electrical rewiring, a shopfront and trade equipment. The shop fit-out is commercial plant, not dwelling plant, so the qualifying portion can attract the AIA in the year of spend, up to the £1,000,000 cap. The flats above are barred. Where the SPV is a company, it can also consider full expensing on the new and unused main-rate elements, a company-only 100% first-year allowance covered in our guide to full expensing and the 50% FYA for commercial property SPVs. The structure of the building itself does not qualify for plant-and-machinery allowances, but newly constructed non-residential structures can attract the structures and buildings allowance at 3%, which deliberately does not apply to residential property.

(c) Grandfathered furnished-holiday-let pools

The furnished-holiday-let (FHL) regime, which used to give holiday-let owners access to the broader plant-and-machinery claim base, was abolished from 1 April 2025 for corporation tax and 6 April 2025 for income tax by Finance Act 2025 Schedule 5 ^[3]. From those dates a former FHL is an ordinary residential let, and the s.35 dwelling-house bar applies to new spend in full.

There is a transitional carve-out for plant already pooled. A plant-and-machinery pool established for an FHL business before abolition transfers into the ordinary property-business pool and continues to receive writing-down allowances, but no new FHL expenditure qualifies. For how these grandfathered balances carry across, see our guide to FHL capital allowances after April 2025. The practical upshot: do not build a capital-allowances plan around a furnished holiday let started after abolition, because it no longer carries the FHL advantage.

What residential landlords claim instead: Replacement of Domestic Items Relief

If the AIA is barred on furniture and white goods inside a let dwelling, what do you actually use instead? Replacement of Domestic Items Relief (RDIR), which is an income tax deduction for individuals under ITTOIA 2005 s.311A ^[4] and a corporation tax deduction for companies under CTA 2009 s.250A ^[5].

RDIR is not a capital allowance. It is a deduction against rental profits for the cost of replacing a domestic item provided for the tenant's use, such as a sofa, bed, carpet, curtains, fridge, freezer, washing machine or crockery. The relief is given on the cost of a broadly equivalent replacement, reduced by any proceeds from selling or part-exchanging the old item, and reduced further if the new item is an improvement rather than a like-for-like replacement.

Two limits catch people out. First, RDIR only covers replacement, not the initial purchase: kitting out a property for the first time gets no relief under this route. Second, the item must be a free-standing or movable domestic item rather than a fixture that forms part of the building (a fitted kitchen replaced on a like-for-like basis is generally a repair, deductible on different principles). For the boundaries, the proceeds adjustment and the improvement rule in full, see our guide to Replacement of Domestic Items Relief for UK landlords. On furnishings, the relief you reach for is RDIR, not the AIA.

How much is the AIA, and the permanent £1 million cap

Where you do have qualifying expenditure, the AIA is a 100% deduction in the chargeable period of purchase, up to a cap of £1,000,000. Section 51A(5) states it plainly: "The maximum allowance is £1,000,000" ^[2].

The £1 million cap is permanent. It was made permanent from 1 April 2023 by Finance (No. 2) Act 2023 s.8, which ended the previous structure of a temporary uplift over a £200,000 baseline. Older guidance that describes the cap as temporary, or as due to fall back to £200,000, is out of date and should not be relied on.

The cap is set by reference to a 12-month chargeable period. If your accounting period is shorter than 12 months, the cap is reduced proportionately: a 9-month period gives a cap of 9/12 of £1,000,000, which is £750,000. A period longer than 12 months is divided into 12-month tranches, each with its own £1,000,000 entitlement plus a proportionate amount for the balance.

The related-company trap: one AIA shared across a group of SPVs

If you hold property through several special-purpose companies, the natural assumption is that each one gets its own £1,000,000 AIA. That is not always true.

Under CAA 2001 s.51E, where two or more companies are both under common control and related to one another, they share a single £1,000,000 annual investment allowance between them, allocated as they see fit. "Control" is defined in s.51F, and companies are "related" under s.51G if they meet either the shared-premises condition or the similar-activities condition (broadly, the same first-level industry classification with substantial overlap). A group of property SPVs run from the same office and carrying on the same letting activity can easily be related, in which case one £1,000,000 cap covers the whole group rather than one per company.

The practical effect: with, say, four commercial-property SPVs under common control and related to each other, you do not have £4,000,000 of AIA headroom across the group, but a single £1,000,000 to share. Where the AIA matters to your structure, check the relatedness test before you commit to a fit-out programme, because the wrong assumption can leave a large chunk of spend in the writing-down pools rather than fully relieved in year one.

How the AIA sits alongside full expensing, WDAs and the new first-year allowances

The AIA is one of several capital allowances, and the choice between them matters once spend exceeds the cap or where a more specific relief applies.

• Full expensing (CAA 2001 s.45S). A 100% first-year allowance on new and unused main-rate plant, incurred on or after 1 April 2023. It is company-only, so individual landlords and partnerships cannot use it, and it does not apply to second-hand assets. For a commercial-property company it can sit alongside the AIA, with a 50% first-year allowance available for special-rate (integral-feature and long-life) assets.
• The new 40% first-year allowance (Finance Act 2026 s.29, inserting CAA 2001 s.45U). A 40% first-year allowance on new and unused main-rate plant incurred on or after 1 January 2026 ^[6]. Unlike full expensing, it is available to unincorporated businesses as well as companies, so if you let property in your own name you can use it on qualifying non-dwelling plant. Cars and second-hand or used assets are excluded.
• Writing-down allowances. Spend above the AIA cap, and main-rate plant not given a first-year allowance, goes into the main pool. The main-pool writing-down allowance is 14% from April 2026, reduced from 18% by Finance Act 2026 s.28, which substituted the new rate into CAA 2001 s.56(1) ^[7]. Periods that straddle the start date use a time-apportioned hybrid rate between 18% and 14%. The special-rate pool, which holds integral features and long-life assets, is unchanged at 6%.

The 130% super-deduction that ran from 1 April 2021 to 31 March 2023 has expired and is relevant now only when computing a disposal-value clawback on assets first claimed in that window.

If you let ordinary residential property, none of this changes the headline: first-year allowances and writing-down allowances only matter where there is qualifying expenditure, and the s.35 bar removes most dwelling plant before these rates ever apply. They become relevant on common-parts plant, commercial space and grandfathered pools.

When you can claim: timing, payment dates and hire purchase

The AIA is claimed in the chargeable period in which the expenditure is incurred, and the date of incurring depends on the payment terms ^[8].

• If payment is required in full within four months of the obligation to pay arising, the expenditure is generally treated as incurred when the obligation becomes unconditional.
• If payment is required more than four months after the obligation becomes unconditional, the expenditure is treated as incurred on the date payment is required.

For plant bought under hire purchase, you can generally claim the AIA once the plant is brought into use, on the capital element of the payments to be made under the agreement, even though the instalments are still outstanding. There is also a restriction in the final chargeable period of a business: the AIA is not available for expenditure incurred in the period in which the qualifying activity permanently ceases, which is relevant where a company is wound up or a sole-trader business ends.

Buying a property with existing fixtures: apportionment and the s.198 election

When you buy a commercial property that already contains qualifying fixtures, such as heating, lighting and integral features, you do not automatically inherit the seller's allowances. For post-April-2014 acquisitions, two gates apply. The pooling requirement means the past owner must have pooled the fixture expenditure for the buyer to claim at all. The fixed-value requirement means the value attributed to the fixtures must be fixed within two years of completion, normally through a joint election under CAA 2001 s.198 (or, failing agreement, a tribunal determination). Miss the election window or the pooling gate and the fixtures can be stranded, with no allowances available to the buyer or any later owner.

This matters for landlords buying commercial or mixed-use buildings, not for ordinary residential purchases, because the s.35 dwelling-house bar means there are no qualifying fixtures inside the let dwellings to apportion in the first place. Where a sale of fixtures triggers disposal values, the seller-side mechanics and any balancing charge are covered in our guide to balancing allowances and balancing charges on disposal.

Selling an asset you claimed the AIA on: disposal values and balancing charges

The AIA gives relief up front, but it is not a permanent giveaway. When you dispose of an asset on which you claimed the AIA, a disposal value is brought into the relevant pool. If the disposal value exceeds the balance left in the pool, the excess is a balancing charge, which is a taxable receipt that effectively claws back some of the relief. If the pool balance exceeds the disposal value when the activity ends, you may instead receive a balancing allowance.

The timing advantage usually remains worthwhile, because a 100% deduction now followed by a charge later is better for cash flow than spreading the relief. But the disposal mechanics are easy to overlook on a sale that includes fixtures, and they should be modelled before exchange rather than discovered afterwards.

Common AIA mistakes landlords actually make

Ranked by how often they cause an incorrect claim or a missed relief:

• Claiming the AIA on plant inside a let dwelling. This is the biggest one. A new boiler, kitchen, bathroom or set of white goods inside an ordinary let flat or house is barred by s.35. Claiming it is wrong, even though the cost is real.
• Treating RDIR spend as an AIA claim, or the reverse. Replacing furniture and white goods in a let dwelling is RDIR, an income or corporation tax deduction, not a capital allowance. Mixing the two leads to claims in the wrong box and the wrong records.
• Assuming each SPV has its own £1 million cap. Related companies under common control share a single AIA under s.51E. A group structure does not multiply the allowance.
• Assuming individual landlords can use full expensing. Full expensing (s.45S) is company-only. An individual landlord cannot use it, although the new 40% first-year allowance (s.45U) is available to unincorporated businesses on qualifying non-dwelling plant.
• Over-claiming on the residential part of a mixed-use building. The commercial part can qualify, the dwelling part cannot, and the apportionment has to be defensible.

If you are unsure which side of the line your spend falls, it is worth a specialist review before you file, because correcting an over-claim later is more disruptive than getting it right first time. If you are approaching the Making Tax Digital deadline for landlords, make sure your digital records distinguish capital spend, replacement-item spend and repairs so that the right relief is claimed through the right mechanism.

Where to go next

For the full CAA 2001 decision framework, including how the qualifying-activity, buildings-exclusion and dwelling-house tests interact across every property type, see our capital allowances guide for property investors. For the general mechanics of the AIA across all businesses rather than the landlord-specific view, see our annual investment allowance overview.

Sources

1. legislation.gov.uk: Capital Allowances Act 2001 s.35 - Expenditure on plant or machinery for use in dwelling-house not qualifying expenditure in certain cases
2. legislation.gov.uk: Capital Allowances Act 2001 s.51A - Entitlement to annual investment allowance (s.51A(5): £1,000,000 maximum)
3. legislation.gov.uk: Finance Act 2025 Schedule 5 - Furnished holiday lettings (abolition, commencement 1 April / 6 April 2025)
4. legislation.gov.uk: Income Tax (Trading and Other Income) Act 2005 s.311A - Replacement domestic items relief
5. legislation.gov.uk: Corporation Tax Act 2009 s.250A - Replacement domestic items relief
6. legislation.gov.uk: Finance Act 2026 s.29 - 40% first-year allowance (CAA 2001 s.45U), expenditure on or after 1 January 2026
7. legislation.gov.uk: Capital Allowances Act 2001 s.56 - Amount of allowances and charges (main-rate WDA 14%, substituted by Finance Act 2026 s.28)
8. gov.uk: Claim capital allowances: Annual investment allowance - GOV.UK