Capital allowances

The capital allowances definition, in one paragraph #

Capital allowances self employed claims and company claims start from the same rule. You cannot deduct the cost of something you buy to keep. A laptop, a van, a machine: these are capital, not running costs, so they never appear as an expense in your tax computation. Capital allowances are the deduction you get instead. Some give you the whole cost in the year you buy, others spread it across several years at a fixed percentage.

This matters more than it sounds. It is why the profit in your accounts is not the profit you pay tax on, and it is the main thing standing between an accounting figure and a taxable one in the corporation tax calculator.

Capital allowances rates for 2026/27 #

For almost every small business the Annual Investment Allowance is the one that matters. At £1,000,000.00 a year it covers the entire capital spend of most companies, and it is available to sole traders and partnerships as well as companies. Full expensing only becomes relevant when you are spending more than that, or when the AIA has already been used.

A capital allowances example #

Take a company buying a new, unused machine for £20,000.00, with the Annual Investment Allowance already used up on something else. The machine is main-rate plant and machinery, so the 40% first-year allowance applies.

The remaining £10,320.00 stays in the main pool and is written down at 14% of the reducing balance each year afterwards. A reducing balance never reaches zero, which is why pools carry on for years after the asset itself has been scrapped.

Had the same company still had its Annual Investment Allowance available, it would have claimed the full £20,000.00 in year one instead. That is the difference the AIA makes, and why it is worth tracking how much of it you have left.

Main pool or special rate pool #

Assets that are not fully relieved in year one go into a pool and are written down at a percentage each year. Which pool decides whether that percentage is 14% or 6%, and the gap is large enough to matter over the life of an asset.

These go in the special rate pool at 6%:

• Integral features: lifts, escalators, heating and cooling systems, electrical systems, external solar shading
• Long life assets, meaning a useful life of 25 years or more where spending passes £100,000 in the period
• Solar panels
• Thermal insulation added to a building
• Cars with CO2 emissions above HMRC's threshold

Capital allowances plant and machinery is the category everything else falls into, and everything else that qualifies goes in the main pool. Long life assets only count as such where the useful life is 25 years or more and spending in the period passes £100,000.00, so a single durable item rarely lands there on its own.

Capital allowances on vans, and why cars are different #

A van is plant and machinery. A car is not treated the same way, and the difference is worth real money. Capital allowances vans questions and capital allowances property questions are the two most common, and they have opposite answers: a van can often be relieved in full straight away, a building almost never can.

So capital allowances on a van can relieve the entire cost in year one. A car is written down slowly instead, and a higher emission car lands in the special rate pool at 6%, where it takes well over a decade to get most of the relief. Check the current CO2 threshold on GOV.UK before assuming which pool a car falls into, because that figure has been ratcheted down repeatedly.

Note also that a double cab pickup, long treated as a van, has been the subject of repeated reclassification. If the vehicle is anywhere near that boundary, confirm its treatment before you buy rather than after.

Capital allowances on cars #

Capital allowances on cars are the most searched corner of this subject and the most restrictive. A car never qualifies for the Annual Investment Allowance, never for full expensing, and never for the 40% first-year allowance. It goes into a pool and is written down slowly.

Capital allowances on electric cars are the exception worth knowing: new zero emission cars have historically attracted a 100% first-year allowance, which no other car gets. Which pool depends on CO2 emissions. A low emission car sits in the main pool at 14%, while a higher emission one lands in the special rate pool at 6%, where recovering most of the cost takes well over a decade. New zero emission cars have historically attracted a 100% first-year allowance, which is the one genuine exception and is worth confirming on GOV.UK before relying on it, because the qualifying thresholds have been tightened repeatedly.

For a sole trader there is a further restriction: an asset used privately as well as for the business is claimable only in the business proportion. That bites hardest on cars, since almost every car has some private use.

Capital allowances on vans #

Capital allowances for vans work completely differently, because a van is plant and machinery rather than a car. The Annual Investment Allowance is available, full expensing is available to a company buying new, and the 40% first-year allowance is available on new and unused vans.

So the entire cost of a van can often be relieved in the year of purchase, while an equivalently priced car is written down at 6% a year. That is the single largest practical difference in this whole area, and it is decided by how the vehicle is classified rather than by what you use it for.

Capital allowances on buildings and commercial property #

Capital allowances commercial property claims are where the real money is, but capital allowances on buildings do not exist in the way people expect. You cannot claim on the structure through the pools at all. What you can claim on is what is inside it, and on commercial property that is often a large share of the purchase price.

Capital allowances integral features are the big category: lifts and escalators, heating, air conditioning and ventilation, electrical and lighting systems, cold water systems, and external solar shading. They all go in the special rate pool at 6%. Loose items such as furniture and equipment go in the main pool instead.

Capital allowances rental property claims follow the same logic with one important limit: a residential letting cannot claim plant and machinery allowances on items inside the dwelling itself. Commercial property and furnished holiday lettings are treated differently from ordinary residential lets, so the property type decides the answer before anything else does.

Capital allowances solar panels sit in the special rate pool at 6%, whether they are on a commercial building or a rental one.

Capital allowances on property #

You cannot claim capital allowances on a building as such. You can claim on what is inside it, and on commercial property that is often a substantial part of the price.

Fixtures and integral features qualify: lifts and escalators, heating, air conditioning and ventilation, electrical and lighting systems, water systems, and external solar shading. They go in the special rate pool at 6%. Loose items such as furniture go in the main pool.

When a commercial property changes hands, the fixtures within it can only be claimed by the buyer if the seller and buyer formally agree the value, usually through a section 198 election, and if the seller had pooled the expenditure. Miss that step at the point of sale and the allowances are lost permanently, not deferred. It is one of the few capital allowances mistakes that cannot be corrected later.

The structure itself may qualify separately for the Structures and Buildings Allowance, which is a different regime with its own rules and is not part of the pools described here.

The Capital Allowances Act #

The legislation is the Capital Allowances Act 2001, and the capital allowances act 2001 remains the governing statute today. It defines what qualifies, what the pools are, and how balancing charges work when you sell something. What it does not contain is the current rates, because those are set and reset by later Finance Acts. That is why reading the Act will not tell you whether the main pool rate is 18% or 14%.

What to watch #

• New and unused. Full expensing and the 40% first-year allowance both require it. Second-hand equipment falls back to the AIA or the pools.
• Companies only. Full expensing and the 50% allowance are not available to sole traders or partnerships.
• Selling creates a charge. Dispose of an asset you claimed on and the proceeds come off the pool. If that makes the pool negative you have a balancing charge, which increases taxable profit.
• Timing is by period, not by tax year. The AIA is pro-rated for accounting periods shorter than twelve months, in the same way the Corporation Tax limits are.
• Private use restricts the claim. For a sole trader, an asset used partly privately is claimable only in the business proportion.

Common questions #

What are the capital allowances rates for 2026/27?

The Annual Investment Allowance is £1,000,000 at 100%. The main pool writing down allowance is 14%, down from 18% before April 2026. The special rate pool is 6%. A 40% first-year allowance started on 1 January 2026 for new, unused main-rate plant and machinery, excluding cars.

What is the capital allowances definition?

Capital allowances are tax relief on things you buy to keep and use in the business, rather than things you use up. You cannot deduct the cost of equipment as an ordinary expense, so capital allowances give you the deduction instead, either all at once or spread over several years.

Can I claim capital allowances on a van?

Yes. A van is plant and machinery, not a car, so it qualifies for the Annual Investment Allowance and, if new and unused, for full expensing if you are a company. Cars are excluded from both, which is the main reason the van and car treatment differ so much.

Can I claim capital allowances on property?

Not on the building itself, but on the fixtures and integral features inside it. Lifts, heating and cooling systems, electrical systems and similar go in the special rate pool at 6%. The structure may qualify separately for the Structures and Buildings Allowance.

What is the difference between the main pool and the special rate pool?

The main pool is most equipment and machinery, written down at 14% a year. The special rate pool is integral features, long life assets, solar panels, thermal insulation and higher emission cars, written down at 6% a year.

What is the Capital Allowances Act?

The Capital Allowances Act 2001 is the legislation that sets out what qualifies and at what rate. Rates are then changed by later Finance Acts, which is why the Act itself does not show the current percentages.

Who can claim full expensing?

Only companies can claim full expensing or the 50% first-year allowance. Sole traders and partnerships use the Annual Investment Allowance instead, which covers up to £1,000,000 at 100% and reaches almost every small business anyway.