Capital Allowances 2026/27: One Consolidated Guide

Finance Act 2026, which received Royal Assent on 18 March 2026, made the most significant changes to UK capital allowances since full expensing was introduced. The main-rate writing down allowance has been cut from 18% to 14%, and a brand new 40% first-year allowance now applies to new main-rate plant and machinery.^[4][5] At the same time, the £1 million Annual Investment Allowance, 100% full expensing for companies and the 6% special rate all continue unchanged.

That is a lot of moving parts, and most guidance covers them one at a time. This guide puts the whole 2026/27 system in one place: what each allowance does, who can claim it, how the allowances interact, and how to order your claims so nothing is wasted. Where a topic deserves its own deep dive, we link to our detailed guide on it.

The 2026/27 capital allowance rates at a glance

The rest of this guide works through each row in turn, then covers the asset types that generate the most questions: vans, cars, second-hand equipment and integral features in property.^[1]

How capital allowances work: the sixty-second version

You cannot normally deduct the cost of equipment, vehicles or machinery from your profits as a day-to-day expense. Instead, tax law gives you capital allowances: a set of statutory deductions that spread (or accelerate) tax relief on capital spending.^[1]

The system has two speeds:

• First-year reliefs (the AIA, full expensing, the new 40% FYA and a handful of 100% first-year allowances) give you all or most of the relief in the year you buy the asset.
• Writing down allowances (WDAs) relieve whatever is left over, year by year, on a reducing balance basis: 14% a year for the main pool and 6% a year for the special rate pool in 2026/27.^[3]

Because WDAs are slow, and now slower than they were, the practical goal of capital allowance planning in 2026/27 is simple: get as much expenditure as possible into a first-year relief, and understand what happens to anything that falls through to a pool. If you want to see the mechanics applied to a single purchase from start to finish, our worked capital allowances example walks through the numbers line by line.

The Annual Investment Allowance: still £1 million, still the workhorse

The AIA gives 100% tax relief in the year of purchase on qualifying plant and machinery, up to £1,000,000 of expenditure per year. The limit is permanent; the old cycle of temporary increases and threatened reductions ended when the £1 million cap was fixed by legislation in 2023.^[2]

Three features make the AIA the default relief for most businesses:

• It covers second-hand assets. Full expensing and the new 40% FYA are restricted to new and unused plant. The AIA is not. A used van, a refurbished machine or second-hand office equipment all qualify. We cover the detail in can you claim AIA on second-hand assets.
• It covers special rate assets. Integral features and long-life assets would otherwise crawl through the 6% pool. Allocating your AIA to them first is one of the oldest and still most effective pieces of capital allowance planning.
• It is available to almost everyone. Companies, sole traders and partnerships (other than mixed partnerships with corporate members) can all claim it.

The main exclusion is cars, which have their own regime covered below.^[2]

For the large majority of UK businesses, annual capital spend never approaches £1 million, so the AIA alone delivers 100% first-year relief on virtually everything. If that describes you, the rate changes in Finance Act 2026 matter less than the headlines suggest, though they still matter at the margins (partial-year AIA restrictions, group sharing of a single AIA limit, and any spend above the cap). For the foundations, see our complete AIA guide, what is AIA in tax, or the plain-English Annual Investment Allowance explained.

Full expensing: 100%, uncapped, companies only

Full expensing lets a company deduct 100% of the cost of new and unused main-rate plant and machinery in the year of purchase, with no upper limit.^[8] A company spending £3 million on new machinery deducts the full £3 million, saving £750,000 of corporation tax at the 25% main rate.

The conditions are stricter than the AIA:

• Companies within the charge to corporation tax only. Sole traders and partnerships cannot claim it.
• New and unused assets only. Second-hand plant is excluded.
• Cars are excluded.
• Plant bought for leasing is excluded.

There is also a 50% first-year allowance for companies on new special rate assets, with the balance going into the 6% pool. Our full expensing guide covers the mechanics, the disposal clawback (a balancing charge on the full sale proceeds), and when full expensing beats the AIA.

In practice the ordering for a company is straightforward: full expensing on uncapped new main-rate plant, AIA prioritised to special rate and second-hand assets, and the pools for whatever remains.

New for 2026: the 40% first-year allowance

The genuinely new relief this year is the 40% first-year allowance introduced by Finance Act 2026 section 29, inserted into the Capital Allowances Act 2001 as section 45U.^[5] It gives a 40% deduction in year one on new and unused main-rate plant and machinery, for expenditure incurred on or after 1 January 2026, with the remaining 60% entering the main pool and attracting the 14% WDA from the following period.

The exclusions mirror full expensing in part: no cars, no second-hand assets, and no plant for leasing overseas. But two things make it worth understanding rather than dismissing as a weaker full expensing:

• It is not restricted to companies. The legislation contains no incorporation requirement. Sole traders, partnerships and individual landlords, none of whom can claim full expensing, can claim the 40% FYA on qualifying new plant.
• Domestic leasing is not excluded. Full expensing shuts out plant bought for leasing. The 40% FYA excludes only overseas leasing, which opens a meaningful first-year relief for UK asset-leasing businesses for the first time since the super-deduction era.

Who actually claims it? A company buying new plant for its own use will almost always prefer 100% full expensing. An unincorporated business will almost always prefer the AIA, which gives 100% rather than 40%. The 40% FYA earns its keep in the gaps: unincorporated businesses that have exhausted their £1 million AIA, companies buying plant to lease out within the UK, and mixed partnerships that cannot claim the AIA at all. If none of those describe you, the 40% FYA is a fallback you will rarely touch, but it is a far better fallback than dropping straight into a 14% pool: 40% now plus 14% reducing balance on the rest relieves just over 48% of the cost by the end of year two, against about 26% through the pool alone.

Writing down allowances: the main pool drops to 14%

The headline cut in Finance Act 2026 is to the main-rate WDA. Section 28 substitutes 14% for 18% in section 56(1) of the Capital Allowances Act 2001, effective for chargeable periods beginning on or after 1 April 2026 for corporation tax and 6 April 2026 for income tax.^[4]

Two practical points follow:

• Straddling periods use a hybrid rate. An accounting period that begins before 1 April 2026 and ends after it does not switch rates mid-year. Instead it applies a single time-apportioned rate between 18% and 14%. A company with a 31 December 2026 year end, for example, has 90 days at the old rate and 275 at the new, giving a hybrid rate of roughly 14.99% for that period, then 14% thereafter.^[4]
• Existing pool balances are hit, not just new spending. The 14% rate applies to your whole main pool brought forward, including expenditure from years ago that never got first-year relief. Relief you were expecting at 18% a year now arrives at 14%: on a £100,000 pool, that is £4,000 less relieved in the first year alone, and the gap compounds because the balance carried forward is larger.

The special rate pool is unchanged at 6%.^[3] You may see claims that the special rate was also cut; they are wrong. The GOV.UK measure page for the reform states explicitly that the 6% special rate WDA is not changed.

For pool mechanics, small pool write-offs and how disposals create balancing adjustments, see our writing down allowance rates guide.

The special rate pool and integral features

The 6% special rate pool catches three main categories: integral features of a building, long-life assets (an expected useful life of 25 years or more), and cars with CO2 emissions above 50g/km.

Integral features are defined in section 33A of the Capital Allowances Act 2001: electrical systems (including lighting), cold water systems, space or water heating systems, powered ventilation and air conditioning, lifts and escalators, and external solar shading.^[7] In a typical commercial property purchase or fit-out, integral features are often the single largest block of qualifying expenditure, sometimes 10% to 30% of the building cost.

The planning point is unchanged but now more valuable: allocate your AIA to special rate expenditure first. £100,000 of integral features relieved through the AIA saves the full amount against profits immediately. The same £100,000 left in the 6% pool takes over 11 years to relieve even half the cost. Main-rate expenditure displaced from the AIA by this ordering now falls back to the 40% FYA or full expensing (if new), or a 14% pool rather than an 18% one, which changes the arithmetic slightly but never the conclusion. Our dedicated guides on integral features capital allowances and capital allowances on property cover identification, fixtures elections on purchase, and the section 198 election traps.

Vans: still the simplest big-ticket claim

Vans are plant and machinery for capital allowance purposes. They are not cars, so none of the car restrictions apply.^[1] That means:

• A new van qualifies for the AIA (100%), full expensing (companies, 100%) or the 40% FYA. In practice you claim the AIA or full expensing and get complete relief in year one.
• A second-hand van is excluded from full expensing and the 40% FYA, but the AIA covers it in full. Unless your total qualifying spend for the year exceeds £1 million, a used van gets exactly the same 100% first-year relief as a new one.
• Private use by a sole trader restricts the claim proportionately. A sole trader using a van 80% for business claims 80% of the allowance. Companies handle private use through benefit-in-kind rules instead, not by restricting the allowance.

The 2026 rate changes barely touch van purchases, because vans almost never end up in a pool. The exception is a business that has already used its full AIA on other assets and is buying used vans; those now enter a 14% pool rather than an 18% one. The details, including double cab pickups and VAT interactions, are in capital allowances on vans and capital allowances on second-hand vans.

Cars: the one asset class with its own rulebook

Cars are excluded from the AIA, from full expensing and from the new 40% FYA. Their treatment in 2026/27 depends entirely on CO2 emissions:^[6]

• 0g/km (electric), new and unused: 100% first-year allowance, currently legislated to 31 March 2027 for corporation tax and 5 April 2027 for income tax. This is the only route to full first-year relief on a car.
• 1 to 50g/km: main pool, so 14% reducing balance in 2026/27 (down from 18%).
• Over 50g/km: special rate pool, 6% reducing balance, unchanged.

The WDA cut quietly worsened the economics of every non-electric company car: a £30,000 hybrid that would have attracted £5,400 of allowances in year one at 18% now attracts £4,200 at 14%. The 100% FYA window for new electric cars ends during 2027 on current legislation, which makes 2026/27 a sensible year to act if an electric company car is on your list. See writing down allowances on cars for the pool mechanics, our company car tax relief guide for how allowances interact with benefit-in-kind, and EV charging point allowances if you are installing workplace chargers alongside.

Sole traders and partnerships: what is different for you

Everything above applies to unincorporated businesses with three adjustments:

• No full expensing. It is companies only. Your 100% route is the AIA; your fallback on new plant above the AIA cap is now the 40% FYA, which you could not have claimed before January 2026.
• Private use restrictions. Allowances on any asset with personal use are restricted to the business proportion, and privately-used assets sit in single asset pools.
• Cash basis. If you use the cash basis, most equipment is simply deducted as an expense when paid for, and capital allowances only arise on cars.

The income tax commencement date for the 14% WDA is 6 April 2026, so the 2026/27 tax year is the first full year at the new rate for sole traders. Our sole trader capital allowances guide covers all of this in depth, including how allowances interact with the trading allowance and partial claims to preserve your personal allowance.

Structures and Buildings Allowance

Construction, renovation and conversion costs for non-residential structures and buildings that do not qualify as plant and machinery attract the Structures and Buildings Allowance at 3% a year on a straight-line basis.^[1] It was not changed by Finance Act 2026. The SBA never overlaps with plant and machinery allowances on the same expenditure: you carve out everything that qualifies as plant or integral features first (where the relief is far faster), and the SBA takes the structural remainder.

Putting it together: the 2026/27 claiming order

For most businesses, the optimal sequence for 2026/27 expenditure looks like this:

1. 100% statutory FYAs first where they apply regardless of cap: new zero-emission cars, EV charge points.
2. Companies: full expensing on all new and unused main-rate plant bought for own use. It is uncapped, so it costs nothing to claim it broadly, and it leaves your AIA free.
3. AIA allocated deliberately: special rate expenditure (integral features, long-life assets) first, then second-hand plant, then anything else. This is where an hour of ordering can be worth thousands.
4. 40% FYA on qualifying new main-rate plant that has no 100% route left: unincorporated businesses over the AIA cap, UK leasing assets, mixed partnerships.
5. Pools for the remainder: 14% main rate, 6% special rate, with the hybrid rate if your accounting period straddles April 2026.

Timing matters more than usual this year. Expenditure is incurred for capital allowance purposes when the obligation to pay becomes unconditional, which is normally delivery, not the invoice date or the order date. If you are close to your year end and a purchase could fall either side of it, the difference between an 18%-era hybrid rate and a clean 14% year, or between having AIA headroom and not, is worth a conversation before you sign.

What Finance Act 2026 actually changed, and what it did not

To close, the changes in one list, because the reporting around them has been patchy:

• Changed: main pool WDA 18% to 14% (section 28); new 40% FYA on new main-rate plant from 1 January 2026 (section 29).^[4][5]
• Not changed: the £1 million AIA, 100% full expensing, the 6% special rate WDA, the 3% SBA, the 100% FYA for new zero-emission cars, and the car emission thresholds.^[2][3]

The net effect is a system that rewards first-year claims more heavily than at any point since the super-deduction. Businesses that plan their spending and claim order carefully will barely notice the WDA cut; businesses that let expenditure drift into the pools will feel it for years, because a reducing balance at 14% carries the cost forward a long way.

If your capital spending this year is significant, or you are buying, fitting out or refurbishing property, it is worth having the allowances mapped before the expenditure is committed rather than at year end. Holloway Davies prepares capital allowance computations and claim-order planning as part of our corporation tax and self assessment work. Get in touch if you would like your 2026/27 position reviewed.

Sources

1. Claim capital allowances. GOV.UK. gov.uk/capital-allowances. Retrieved 2026-07-23.
2. Claim capital allowances: Annual Investment Allowance. GOV.UK. gov.uk/capital-allowances/annual-investment-allowance. Retrieved 2026-07-23.
3. Work out your capital allowances: rates and pools. GOV.UK. gov.uk/work-out-capital-allowances/rates-and-pools. Retrieved 2026-07-23.
4. Finance Act 2026, section 28 (writing-down allowances: reduction of main rate, amending Capital Allowances Act 2001 section 56). legislation.gov.uk. legislation.gov.uk/ukpga/2026/11/section/28. Retrieved 2026-07-23.
5. Finance Act 2026, section 29 (first-year allowance for main rate expenditure on plant or machinery, inserting Capital Allowances Act 2001 section 45U). legislation.gov.uk. legislation.gov.uk/ukpga/2026/11/section/29. Retrieved 2026-07-23.
6. Claim capital allowances: business cars. GOV.UK. gov.uk/capital-allowances/business-cars. Retrieved 2026-07-23.
7. Capital Allowances Act 2001, section 33A (expenditure on provision or replacement of integral features). legislation.gov.uk. legislation.gov.uk/ukpga/2001/2/section/33A. Retrieved 2026-07-23.
8. Claim capital allowances: first year allowances. GOV.UK. gov.uk/capital-allowances/first-year-allowances. Retrieved 2026-07-23.