Changes to Capital Allowances in 2026

The government confirmed a number of changes to Capital Allowances in the 2025 Autumn Budget, affecting how businesses claim tax relief on investment in plant and machinery over the coming years.

While some reliefs are being scaled back, others are being introduced to continue encouraging business investment, particularly in greener assets.

Now’s the time to be strategic about the structure of capital expenditure to ensure you’re maximising on the reliefs available. In this blog, we outline the main changes and what they mean in practice.

 

Reduction in Writing Down Allowance

From April, the writing down allowance for expenditure in the main pool will be cut from 18% to 14% per year.

This applies:

• from 1 April 2026 for businesses within Corporation Tax, and
• from 6 April 2026 for businesses within Income Tax.

There will also be a hybrid rate for chargeable periods that straddle these dates.

The main pool typically includes most standard plant and machinery used in a business. A lower Writing Down Allowances means relief on qualifying expenditure will be spread over a longer period, increasing taxable profits in the short term.

For businesses planning significant capital investment, this change makes it more important to consider whether alternative reliefs, such as First-Year Allowances or the Annual Investment Allowance, are available.

 

New 40% First-Year Allowance

To help offset the reduction in writing down allowances, the government introduced a new 40% first-year allowance (FYA) on 1 January 2026 for main rate expenditure.

This allowance is intended to encourage continued investment in plant and machinery, particularly for:

• Assets acquired for leasing, and
• Unincorporated businesses that may not benefit from full expensing.

The new FYA allows 40% of qualifying expenditure to be deducted in the year of purchase, with the remaining balance entering the main pool and attracting Writing Down Allowances in future years.

 

Extension of 100% First-Year Allowances for zero emission assets

The government has also confirmed an extension of the 100% first-year allowances for environmentally friendly investments.

Relief will continue to be available for:

• New zero emission cars
• Electric vehicle charge points

These allowances have been extended for:

• Corporation tax purposes until 31 March 2027
• Income tax purposes until 5 April 2027

This extension provides businesses with additional certainty and continues to support investment in low-emission and sustainable technologies.

 

Annual Investment Allowance and Full Expensing Remain Available

Despite changes elsewhere, two of the most generous Capital Allowances remain fully available:

Annual Investment Allowance (AIA)

The £1 million Annual Investment Allowance continues unchanged, allowing businesses to claim 100% tax relief on qualifying plant and machinery expenditure up to the annual limit.

This remains a valuable relief for small and medium-sized businesses making regular capital investments.

Full Expensing

Full Expensing also remains in place for companies, enabling 100% immediate relief on qualifying main rate plant and machinery.

For businesses within the scope of corporation tax, full expensing can significantly improve cash flow and reduce the after-tax cost of investment.

Full Expensing, however, doesn’t apply to assets acquired for leasing.

 

What this means for businesses

While the reduction in Writing Down Allowances will increase the cost of investment over time, the continued availability of AIA, full expensing and targeted first-year allowances means there’s still substantial opportunities to claim upfront tax relief.

Careful planning around the timing of expenditure, the type of assets purchased and the structure of the business will be key to maximising relief under the revised rules.

If you’re considering upcoming capital investment, contact us to discuss the allowances available to you and avoid unexpected tax costs.

Contact your local TC Group team