Capital Allowances

Not every capital allowances claim requires a specialist. However, specialist input can be particularly valuable when you buy, build, extend, refurbish or fit out commercial property, where qualifying expenditure can be embedded within the overall project cost and may not be obvious from the accounts. A specialist can analyse construction costs, specifications and property information to identify qualifying plant, machinery, fixtures and integral features, and determine which allowances are available. The objective should be to identify the relief to which you are entitled while ensuring that the claim is appropriately evidenced and defensible.

Your accountant may have considerable capital allowances expertise and will often identify straightforward expenditure on equipment and machinery. Property-related claims can be more complex because qualifying assets may be embedded within construction, refurbishment or acquisition costs. Identifying these can require detailed analysis of building plans, specifications, cost schedules and fixtures. A capital allowances specialist can therefore work alongside your accountant, providing the property and technical analysis needed to support the tax treatment.

There is no standard fee. The cost will depend on factors such as the size and complexity of the property, the nature of the expenditure, the records available and the scope of the review. Advisers may charge a fixed fee or, in some cases, a fee related to the value of allowances identified. When comparing fees, consider the scope of the work, the level of technical analysis undertaken, the supporting documentation provided and whether assistance with HMRC queries is included.

Potentially, yes. Although the purchase price of the building itself does not generally qualify for plant and machinery allowances, part of the price may relate to qualifying fixtures and integral features, such as heating, electrical and air-conditioning systems. However, special rules apply when acquiring a property containing fixtures from another business. The seller's previous claims, pooling of expenditure and the agreed value attributed to fixtures can affect what the purchaser can claim. Capital allowances should therefore ideally be considered before the property transaction is completed, rather than afterwards.

Potentially. If qualifying expenditure was not fully identified when it was incurred, it may be possible to review historic expenditure and claim allowances that remain available. The position depends on factors including what was purchased, when the expenditure was incurred, whether allowances have already been claimed and, for acquired properties, the history and treatment of fixtures. Historic property expenditure can therefore be worth reviewing, but the circumstances need to be considered carefully before assuming unclaimed allowances remain available.

Selling a property can affect capital allowances already claimed and the allowances available to the purchaser. Where fixtures are involved, the seller and buyer may need to agree the value attributed to them, commonly through a section 198 election. The seller may also need to bring a disposal value into its capital allowances calculation, which can result in a balancing adjustment. Capital allowances should therefore form part of the tax due diligence for a commercial property sale rather than being considered only after completion.

Capital allowances can be available on capital expenditure on plant and machinery used for the purposes of a qualifying business activity. This can include obvious assets such as machinery and equipment, but also fixtures and systems incorporated into buildings. Buildings and land themselves do not generally qualify for plant and machinery allowances, although separate relief may be available under the Structures and Buildings Allowance. What qualifies depends on the asset, how it is used and the circumstances in which the expenditure was incurred.

Integral features are certain systems incorporated into a building that are specifically treated as plant and machinery for capital allowances purposes. They include electrical and lighting systems, space and water heating systems, air-conditioning and air-cooling systems, hot and cold water systems, lifts and escalators, and external solar shading. Integral features are generally special-rate expenditure, so identifying them correctly can affect both the amount and timing of the tax relief available.

Both can provide substantial upfront tax relief, but they operate differently. The Annual Investment Allowance (AIA) provides 100% relief on qualifying plant and machinery expenditure up to an annual limit of £1 million and is available to qualifying businesses, subject to the rules. Full Expensing allows companies within the charge to Corporation Tax to claim 100% relief on qualifying new and unused main-rate plant and machinery, with no equivalent £1 million expenditure cap. Where expenditure could qualify for more than one allowance, businesses can choose how to allocate their claims. The best approach will depend on the type and amount of investment, the assets involved and the company's tax position.

The 40% First-Year Allowance applies to qualifying expenditure incurred on or after 1 January 2026. It allows a business within the charge to Corporation Tax or Income Tax to claim an immediate deduction equal to 40% of the cost of qualifying new and unused main-rate plant and machinery.

Cars and expenditure that is excluded under the capital-allowance rules do not qualify. The allowance is separate from the Annual Investment Allowance and Full Expensing, so the most appropriate treatment will depend on the asset, the business’s tax position and whether another allowance provides a better result.

The remaining expenditure is dealt with under the applicable capital-allowance rules. Businesses should therefore avoid assuming that the balance will always receive a particular rate or treatment in the following accounting period.

Yes, in some circumstances. A UK property business is a qualifying activity for plant and machinery allowances, and commercial landlords may be able to claim on qualifying fixtures and plant within their properties.

There are, however, important restrictions for plant and machinery used in dwelling-houses. Qualifying expenditure in communal areas of some residential buildings may still be eligible, but the position can differ significantly between commercial, mixed-use and residential property.

The availability of allowances may also depend on the history of the fixtures, previous claims and the treatment agreed when the property was acquired

A review is particularly worth considering when your business is buying or selling commercial property, undertaking a major refurbishment or fit-out, constructing or extending premises, or making significant investment in plant and machinery.

It can also be worthwhile reviewing historic property expenditure where you are unsure whether all available allowances were identified. For an acquisition or disposal, decisions made during the transaction can directly affect the allowances available afterwards, particularly where fixtures are involved.

Ideally, specialist advice should be obtained early enough to influence the transaction structure, records and contractual documentation. Review your capital allowances position before committing to the project where possible.