Small Business Accountants

What are Capital Allowances?

Capital allowances let UK businesses deduct the cost of qualifying assets from taxable profits. For 2025/26, the Annual Investment Allowance remains at £1,000,000, full expensing provides 100% relief on main-rate plant and machinery, and writing down allowances apply at 18% or 6% depending on the asset pool. Additional reliefs cover business premises renovation, mineral extraction, research and development, and patent costs.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 1

What are Capital Allowances, How to Claim? - GoForma Tax Guides | UK Accountants & Tax Advisors

Key takeaways

Capital allowances allow UK businesses to claim tax relief on money spent purchasing qualifying assets such as plant, machinery, vehicles, and equipment used for trade.
The Annual Investment Allowance is permanently set at £1,000,000, giving most UK businesses full first-year tax relief on their eligible capital expenditure each year.
Full expensing at 100% applies to qualifying main-rate plant and machinery purchases, while special rate assets receive a 50% first-year allowance from the government instead.
Writing down allowances let you claim 18% per year on assets in the main rate pool or 6% per year on special rate pool assets for ongoing annual relief.
The Structures and Buildings Allowance provides 3% annual straight-line relief on costs for constructing or renovating eligible commercial buildings and structures.

Capital allowance is an expenditure you can claim on assets you purchase for use in your business.

In addition to the purchase of business assets, you can also claim capital allowances for renovating business premises in disadvantaged areas in the UK, extracting minerals, research and development, patents and more. Further information can be found on the HMRC website.

Frequently asked questions

What are capital allowances?

Capital allowances are a form of tax relief that lets businesses deduct the cost of qualifying capital expenditure from their taxable profits. Instead of deducting the full cost in the year of purchase, different allowance types spread the relief over time or grant it upfront. They apply to assets like plant, machinery, equipment, vehicles, and certain buildings used for business purposes, helping reduce your overall tax bill.

What is the Annual Investment Allowance for 2025/26?

The Annual Investment Allowance (AIA) for 2025/26 is permanently set at £1,000,000. This means most businesses can claim 100% tax relief on qualifying capital expenditure up to one million pounds in a single tax year. The AIA covers most plant and machinery purchases but does not apply to cars. Any spending above the AIA limit is then claimed through writing down allowances at the applicable rate.

How does full expensing work for capital allowances?

Full expensing allows companies to claim 100% first-year relief on qualifying main-rate plant and machinery. This means the entire cost of eligible assets can be deducted from taxable profits in the year of purchase, with no cap on the amount. For special rate assets, a 50% first-year allowance applies instead. Full expensing was made permanent from April 2023 and is available to companies liable to corporation tax.

What are writing down allowances and what are the rates?

Writing down allowances (WDA) let businesses claim a percentage of the remaining value of their capital assets each year. For 2025/26, the main rate pool uses an 18% annual rate, which covers most plant and machinery. The special rate pool uses a 6% annual rate, covering items like integral building features, long-life assets, and thermal insulation. WDA applies to any expenditure not fully covered by the AIA or first-year allowances.

What is the Structures and Buildings Allowance?

The Structures and Buildings Allowance (SBA) provides 3% annual relief on the cost of constructing, renovating, or converting qualifying commercial buildings and structures. The allowance is claimed on a straight-line basis over approximately 33 years. It applies to buildings first brought into qualifying use on or after 29 October 2018. Land costs are excluded, and the building must be used for a qualifying business activity.

Can I claim capital allowances on renovating business premises?

Yes, businesses can claim capital allowances on the cost of renovating or converting commercial premises, particularly in designated disadvantaged areas under the Business Premises Renovation Allowance. Additionally, the Structures and Buildings Allowance at 3% covers renovation of eligible commercial buildings regardless of location. Integral features installed during renovation, such as heating systems and lifts, can also qualify for writing down allowances at the special rate.

Do capital allowances apply to research and development costs?

Yes, capital expenditure on research and development can qualify for capital allowances, including 100% first-year relief under the R&D allowance for qualifying expenditure on research facilities and equipment. This is separate from the R&D tax credit schemes for revenue expenditure. Businesses conducting scientific or technological research can claim on assets used directly in that work, providing significant upfront tax relief on laboratory equipment and similar investments.

Can capital allowances be claimed on patents and mineral extraction?

Yes, specific capital allowance rules cover both patents and mineral extraction. Patent allowances let businesses write off the cost of purchasing patent rights over the life of the patent, providing annual tax relief. Mineral extraction allowances apply to expenditure on acquiring mineral assets or rights and related works, such as tunnels and processing facilities. Both reliefs are designed to spread the tax deduction across the useful life of the asset.

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