Answers · UK 2025/26
What is the Annual Investment Allowance and how much is it for 2026/27?
The Annual Investment Allowance (AIA) gives businesses 100% first-year tax relief on qualifying plant and machinery purchases up to £1,000,000 per year. It covers most equipment, tools, and fixtures but not cars, buildings, or assets bought for leasing. The £1m limit has been made permanent from April 2023.
Full answer
The Annual Investment Allowance is a capital allowance available to businesses under Chapter 5A of the Capital Allowances Act 2001. For 2026/27, the AIA stands at £1,000,000 per year -- a limit that was made permanent from 1 April 2023 (corporation tax) and 6 April 2023 (income tax), removing the uncertainty of previous temporary uplifts. What qualifies: plant and machinery including computers, machinery, tools, integral features (heating, electrical systems, lifts), and fixtures in commercial buildings. What does not qualify: cars (use the appropriate Writing Down Allowance pool instead -- 18% main pool or 6% special rate pool), items used for leasing to third parties, assets bought from connected parties, and buildings or structures (use the 3% Structures and Buildings Allowance instead). How it works: the full cost of qualifying assets is deducted from taxable profits in the year of purchase, giving immediate 100% relief rather than spreading it over several years via writing down allowances. For a company paying 25% corporation tax, a £500,000 machinery purchase produces an immediate £125,000 tax saving. AIA annual limit pro-rating: if your accounting period is shorter than 12 months, the AIA is pro-rated. Businesses in a group cannot each claim the full AIA -- connected companies share a single £1m limit and must allocate it between themselves. The AIA interacts with the full expensing regime introduced in April 2023 (100% first-year allowance for main pool assets), which for companies effectively makes AIA less critical, but AIA remains valuable for unincorporated businesses and assets in the special rate pool not covered by full expensing.
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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.