Answers · UK 2025/26
How does the Annual Investment Allowance work for groups of companies in the UK?
The £1,000,000 Annual Investment Allowance (AIA) limit must be shared among companies under common control or in a group. Connected companies do not each get £1,000,000 -- the total allowance across all connected entities is capped at £1,000,000 per 12-month period.
Full answer
The Annual Investment Allowance (AIA) provides 100% upfront tax relief on qualifying plant and machinery expenditure, up to £1,000,000 per year. Group and connected company rules: A critical restriction applies where companies are 'associated' or 'under common control': - Two or more limited companies are 'associated' (broadly) if they are controlled by the same person or persons, or if one controls the other. - Associated companies must share the £1,000,000 AIA limit between them. The allocation is at their discretion -- they can apportion it in any way that maximises tax efficiency. - Example: A group with three associated trading companies investing £400,000 each (£1.2m total) can allocate: Company A: £600k, Company B: £300k, Company C: £100k. The remaining £200k of expenditure (above the total £1m AIA) qualifies for WDA at 18% instead. Sole traders and partnerships: - A sole trader with multiple businesses shares one AIA limit across all their businesses. - A partnership and a sole trader business run by the same person share the limit. Accounting periods shorter or longer than 12 months: - If a company's accounting period is less than 12 months, the AIA is proportionately reduced. - A 6-month period has a maximum AIA of £500,000. Full Expensing vs AIA: - Full Expensing (100% first-year allowances introduced in the 2023 Spring Budget and made permanent) is available on new main pool assets without any monetary cap, but only for incorporated companies. It does not apply to sole traders or partnerships. - AIA remains important for second-hand assets, special rate pool assets, and unincorporated businesses. Careful planning of capital expenditure timing across group companies can significantly improve the AIA position.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.