Pillar Guide · Updated May 2026
UK Capital Allowances Explained 2026/27: AIA £1 Million, Full Expensing 100%, Writing Down Allowance 18%/6%, Structures and Buildings Allowance 3% and Car Rules
Capital allowances are the UK tax system's mechanism for giving businesses relief on capital expenditure — plant, machinery, vehicles, fixtures, and commercial structures. From April 2023, companies can claim Full Expensing — a permanent 100% first-year allowance on new main-pool plant and machinery with no upper limit — making large equipment purchases fully tax-deductible in year 1. The Annual Investment Allowance (AIA) at £1 million per year gives the same 100% deduction for most businesses (including sole traders and partnerships) on qualifying plant up to £1m. Assets outside AIA/ Full Expensing use the Writing Down Allowance — 18% per year for main pool assets, 6% for special rate pool (integral building features, long-life assets). Commercial buildings qualify for the Structures and Buildings Allowance at 3% per year. Cars follow separate CO2-based rules. This pillar guide explains every capital allowance regime for 2026/27, including worked examples for sole traders and limited companies.
Capital Allowances at a Glance — Summary Table
Capital allowances summary (2025/26)
| Allowance | Rate | Cap | Qualifying assets |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% | £1,000,000/yr | Most plant & machinery (excl. cars) |
| Full Expensing (companies only) | 100% | Unlimited | New main pool plant (excl. cars, leasing) |
| 50% First-Year Allowance | 50% | Unlimited | New special rate pool assets (companies) |
| Writing Down Allowance — main pool | 18%/yr | None | General plant, machinery, tools, IT |
| Writing Down Allowance — special rate | 6%/yr | None | Integral features, long-life assets |
| Zero-emission car FYA | 100% | None | New & second-hand zero-emission cars |
| Structures & Buildings Allowance | 3%/yr | None | Non-residential buildings & structures |
Annual Investment Allowance (AIA) — The SME Workhorse
The AIA has been set at £1,000,000 per year since January 2022 (made permanent in the Autumn Statement 2021). For most small and medium businesses, this means all capital expenditure on plant and machinery is fully deductible in the year of purchase — no need for the pool-based Writing Down Allowance at all.
Qualifying assets include: machinery, equipment, tools, computers, office furniture, commercial vehicles (vans, lorries — not cars), fixtures in commercial property, and integral features (electrical, water, heating systems) when being newly installed.
AIA allocation tip for large spenders
If total qualifying expenditure exceeds £1m, apply AIA to special rate pool assets first (those with the lowest 6% WDA) before main pool assets (18% WDA). This maximises the value of the AIA by giving 100% relief to assets that would otherwise receive only 6%/yr.
Full Expensing — 100% First-Year Allowance for Companies
Introduced from 1 April 2023 and made permanent in the Autumn Statement 2023, Full Expensing gives incorporated companies a permanent 100% deduction in year 1 on new main-pool plant and machinery — with no upper limit.
The practical effect: a company can invest £10 million in new production equipment and deduct the entire cost from Corporation Tax profits in the year of purchase. At 25% Corporation Tax this saves £2.5 million in tax compared to spreading the relief over many years via WDA.
Full Expensing replaced the temporary 130% super-deduction which ran from 1 April 2021 to 31 March 2023. Unlike the super-deduction, Full Expensing does not provide more than 100% relief — but it is permanent and applies to all qualifying new plant without limit.
Full Expensing vs AIA — which to use?
For companies spending under £1m on plant: use AIA (applies to new and second-hand assets; companies and unincorporated businesses alike). For companies spending over £1m on new main pool plant: Full Expensing handles the excess above the AIA limit at 100%. The 50% first-year allowance on special rate assets applies to the excess of special rate pool spend above AIA.
Writing Down Allowance — Main Pool (18%) and Special Rate Pool (6%)
Assets that are not fully covered by AIA or Full Expensing enter the pool system and receive annual writing down allowances on the remaining balance:
WDA reducing balance — £100,000 main pool asset
| Year | Pool balance | WDA (18%) | Closing balance |
|---|---|---|---|
| 1 | £100,000 | £18,000 | £82,000 |
| 2 | £82,000 | £14,760 | £67,240 |
| 3 | £67,240 | £12,103 | £55,137 |
| 5 | £37,030 | £6,665 | £30,364 |
| 10 | £16,229 | £2,921 | £13,308 |
The reducing balance never reaches zero via WDA alone. Small pool write-off (below £1,000) available.
Special rate pool assets at 6% WDA include:
- Integral features of commercial buildings (electrical systems, cold water systems, space/water heating, air conditioning, lifts and escalators, external solar shading)
- Thermal insulation added to existing commercial buildings
- Long-life assets (over 25-year expected economic life)
- Solar panels (photovoltaic) installed after March 2012
Car Capital Allowances — CO2-Based Rules
Cars cannot use AIA or Full Expensing. The applicable allowance depends on CO2 emissions:
| CO2 emissions | Pool / allowance | Rate |
|---|---|---|
| 0g/km (zero-emission) | 100% FYA (separate from pools) | 100% |
| 1–50g/km (low emission) | Main pool | 18%/yr WDA |
| Over 50g/km | Special rate pool | 6%/yr WDA |
Private use restriction: if an employee (including a director) uses a car partly for private purposes, the capital allowance is restricted to the business-use fraction. A car with 30% private use gets only 70% of the WDA/FYA.
Structures and Buildings Allowance (SBA)
The SBA provides relief on new commercial construction and renovation at 3% per year on a straight-line basis for approximately 33 years. Available since October 2018.
The SBA covers: construction costs (labour, materials, professional fees), conversion costs (making non-residential buildings habitable for commercial use), and renovation of existing commercial buildings. It does NOT cover land costs or the cost of acquiring an existing building (only improvement works).
A business spending £500,000 constructing a new warehouse gets £15,000 SBA per year (3%), reducing taxable profits by £15,000 annually for 33 years. At 25% CT: saves £3,750/year in Corporation Tax.
Capital Allowances and R&D
R&D Capital Expenditure (RDCE) — assets used exclusively for qualifying R&D — qualifies for a 100% R&D allowance under the Merged Scheme (from April 2024) or prior SME/RDEC schemes. This is separate from the standard capital allowances regime and provides full deduction in year 1 for dedicated R&D assets (lab equipment, specialist tooling). Assets used partly for R&D and partly for other purposes use standard capital allowances on the non-R&D fraction.
Common Mistakes
- 1. Claiming AIA on cars. Cars are excluded from AIA. Use the CO2-based pool rules.
- 2. Not applying AIA to special rate pool first. When spend exceeds AIA limit, apply AIA to 6% pool assets before 18% pool to maximise value.
- 3. Forgetting private-use restriction. Cars and assets with mixed personal/business use require a restriction to the business-use fraction.
- 4. AIA shared in groups/partnerships. Connected businesses share one £1m AIA — not £1m each. Check group/connected-company rules.
- 5. Claiming SBA on land. SBA applies to construction costs only, not land. Split the purchase contract carefully.
- 6. Full Expensing on second-hand assets. Full Expensing applies to new assets only. Second-hand plant uses AIA (up to £1m) or WDA.
Related Calculators and Guides
Use our Corporation Tax Calculator to see how capital allowances reduce your Corporation Tax bill, or our R&D Tax Relief Guide for enhanced allowances on qualifying research expenditure.