If you own a rental property in the UK, capital allowances may help you reduce your tax bill, but only on certain types of property and certain types of expenditure. The rules around them are often misunderstood, and a major change in April 2025 has narrowed who can actually claim. This article explains, in plain terms, what capital allowances are in 2026, who qualifies, what assets count, and how to work out the claim correctly.

Understanding Capital Allowances

Capital allowances are a form of tax relief that lets a business deduct the cost of certain capital assets from its taxable profits. They sit in place of accounting depreciation, which HMRC does not allow as a tax deduction.

For a property business, capital allowances apply to qualifying items such as plant and machinery, integral features within commercial buildings, and certain fixtures. By claiming them, a landlord operating a qualifying business can reduce taxable profit, lower the tax due, and free up cash that would otherwise have gone to HMRC.

It is important to understand from the outset that capital allowances are not available on furniture, white goods, or fixtures inside ordinary residential buy to let properties. That restriction is set out in section 35 of the Capital Allowances Act 2001.

Fundamentals of Rental Property Capital Allowances

Capital allowances often catch landlords out because the rules differ depending on the type of property. The position in 2026 is as follows.

A landlord with a standard residential buy to let cannot claim capital allowances on items used inside the dwelling. Instead, the landlord may use Replacement of Domestic Items Relief when replacing items such as beds, sofas, fridges, washing machines, carpets, and curtains.

A landlord who owns a commercial property, such as an office, shop, warehouse, or HMO common parts in a qualifying commercial structure, may claim capital allowances on qualifying plant, machinery, and integral features.

A landlord who previously ran a Furnished Holiday Let (FHL) is in a transitional position. The FHL regime was abolished from 6 April 2025 for income tax and 1 April 2025 for corporation tax. New expenditure on a former holiday let no longer qualifies for capital allowances, but allowances already in a capital allowances pool by that date can continue to be written down against future property business profits.

Capital allowances can also be claimed on qualifying past expenditure that has never been claimed. If the asset is still in use by the business, a backdated claim is often possible, even on spending from many years earlier.

What is a Fixture?

A fixture is an item of plant or machinery that has been installed in a building in such a way that it becomes part of the property in law. Common examples include heating and air conditioning systems, electrical wiring, lifts, sanitary fittings, fitted kitchens in commercial premises, fire alarms, and security systems.

Fixtures are different from movable furniture. A desk, a chair, or a free standing wardrobe is not a fixture. Items that are simply placed in a property, rather than fixed to it, do not qualify for capital allowances on fixtures.

In a commercial setting, identifying fixtures correctly is one of the biggest sources of missed tax relief. Many older buildings still contain qualifying expenditure that has never been claimed.

Eligibility and Qualifying Expenditure

To claim capital allowances on a property, the claimant must be within the UK tax net, the property must be used for a qualifying purpose, and the spending must be on qualifying capital items.

Qualifying expenditure typically falls into three categories:

• Plant and machinery used in the business, such as tools, computers, and movable equipment in a commercial setting.
• Fixtures within commercial property, such as heating, lighting, lifts, and sanitaryware.
• Integral features within commercial property, including electrical systems, cold water systems, lifts and escalators, air conditioning, and external solar shading. These sit in the special rate pool.

Cars do not qualify for the Annual Investment Allowance or Full Expensing. They are dealt with under separate rules linked to CO2 emissions.

Basic Rules on Capital Allowances for Landlords

The headline rules for landlords in the 2025/26 and 2026/27 tax years are as follows:

• Capital allowances can be claimed whether the property is held in a personal name, in a partnership, or in a limited company.
• Allowances are available on commercial property and, on a transitional basis, on qualifying expenditure already pooled before April 2025 for former Furnished Holiday Lets.
• For commercial property, identifying qualifying fixtures and integral features can typically unlock tax relief on a meaningful portion of the purchase price, often in the range of 15 percent to 45 percent depending on the building type and use.
• Rental profits remain taxable. Capital allowances reduce the taxable profit and therefore the tax payable, rather than producing a separate refund.
• Missed allowances on qualifying assets still in use can usually be claimed in a current return, subject to HMRC rules and any required pooling and section 198 elections on past purchases.

Types of Capital Allowances Available in 2026

Several different reliefs sit under the capital allowances umbrella. The main ones relevant to property businesses in 2026 are:

Annual Investment Allowance (AIA). A 100 percent deduction on qualifying plant and machinery in the year of purchase, up to £1 million per year. The £1 million limit has been permanent since the Spring Budget 2023. AIA is available to sole traders, partnerships, and companies, and can be claimed on both new and second hand assets.

Full Expensing. A 100 percent first year deduction on qualifying new main pool plant and machinery, with no upper cap. It is available only to limited companies, not to sole traders or partnerships. A 50 percent first year allowance applies to qualifying special rate expenditure. Full Expensing was made permanent in November 2023.

40 Percent First Year Allowance (new in 2026). From 1 January 2026 for corporation tax and 6 April 2026 for income tax, a permanent 40 percent first year allowance is available for qualifying new main pool plant and machinery. It is open to sole traders, partnerships, and companies, and importantly applies to assets bought for leasing, which Full Expensing does not. It is intended for use where AIA and Full Expensing cannot apply.

Writing Down Allowance (WDA). Annual percentage relief on the residual balance of pooled expenditure. From April 2026 the main pool rate falls from 18 percent to 14 percent. The special rate pool remains at 6 percent. Accounting periods that straddle the change date use a hybrid rate.

Structures and Buildings Allowance (SBA). A 3 percent flat rate annual deduction on the qualifying construction cost of non residential structures and buildings, given on a straight line basis over roughly 33 years and 4 months.

Super Deduction. This was a temporary 130 percent relief that ended on 31 March 2023. It is no longer available and is mentioned here only for context.

How to Claim Capital Allowances on Property Investments

The process depends on whether you are buying or selling.

If you are buying a commercial property, capital allowances on fixtures will only be available if the right steps are taken at the point of purchase. The seller must have pooled the qualifying expenditure, and a section 198 election under the Capital Allowances Act 2001 must usually be agreed in writing within two years of completion to fix the value transferred to the buyer. Without this, the buyer can permanently lose the right to claim.

If you are selling, identifying and protecting any unclaimed capital allowances before exchange is critical. Failing to do so can reduce the value of the building to a buyer who knows the rules and may negotiate the price down accordingly.

In both cases, the practical advice is the same: address capital allowances early in the transaction, ideally during heads of terms, not after completion.

For ongoing ownership of a qualifying commercial property, capital allowances are claimed on the Self Assessment tax return for individuals or partnerships, and on the Corporation Tax return for companies.

Calculating a Capital Allowances Claim for Property Owners

The starting point is to identify all qualifying expenditure for the accounting period. Qualifying expenditure on plant, machinery, fixtures, and integral features is allocated either to the main pool, the special rate pool, or claimed against AIA, Full Expensing, or the new 40 percent FYA where eligible.

A worked example helps illustrate this. Suppose a limited company landlord buys £40,000 of qualifying plant and machinery for a commercial property in the 2025/26 accounting year. The full £40,000 sits well below the £1 million AIA cap, so the company can deduct the entire amount from taxable profit in that year. At a 25 percent corporation tax rate, that produces a tax saving of £10,000 in year one.

Where spending exceeds the AIA limit, a company can use Full Expensing on additional qualifying main rate expenditure, while a sole trader or partnership can use the new 40 percent FYA from April 2026. Anything left over goes into the relevant pool and attracts WDA at the prevailing rate.

When the AIA changes within an accounting period, or when the accounting period is shorter or longer than 12 months, the AIA must be apportioned. For a 9 month period, for example, the AIA limit becomes £750,000.

Tax Benefits of Claiming Capital Allowances

For landlords with qualifying commercial property, the financial impact can be significant. Properly identified capital allowances:

• Reduce taxable profits, sometimes substantially in the year a property is acquired.
• Lower the immediate tax bill, whether through income tax or corporation tax.
• Improve cash flow that can be reinvested in the portfolio.
• Strengthen the overall return on a commercial property investment.

Because relief is given against profits, the value of the saving depends on the marginal rate of tax. A higher rate individual taxpayer or a company paying corporation tax at 25 percent will see a larger cash benefit per pound of qualifying expenditure than a basic rate taxpayer.

Record Keeping and Compliance

A capital allowances claim is only as strong as the records that support it. HMRC expects landlords and businesses to keep:

• Invoices and completion statements for all qualifying expenditure.
• A breakdown of what each item is and how it qualifies.
• Pool calculations carried forward year to year.
• Section 198 elections, where relevant, signed within the statutory two year window.
• Survey reports for property purchases where a specialist has carried out a fixtures analysis.

Records should be kept for at least six years from the end of the accounting period to which they relate. A specialist capital allowances review on a commercial property purchase is often the most reliable way to identify qualifying spend that would otherwise be overlooked.

Why Speak with a Property Tax Expert

Capital allowances sit at the crossover between tax law, surveying, and property transactions. The rules on fixtures, pooling, and section 198 elections are technical and unforgiving, and the abolition of the FHL regime in April 2025 has made the landscape more complex for landlords with mixed portfolios.

A property tax specialist can review your portfolio, identify whether qualifying expenditure has been missed, advise on the right reliefs to claim, and protect allowances during property transactions. The right advice often pays for itself many times over in recovered tax.

If you are unsure where you stand on capital allowances in 2026, our team at Property Tax Services can review your position and tell you, plainly, what you can and cannot claim.

Frequently Asked Questions

Can I claim capital allowances on a residential buy to let?

No. Capital allowances are not available on items installed for use inside a dwelling. For replacements of beds, white goods, carpets, and similar items, use Replacement of Domestic Items Relief instead.

Can I still claim capital allowances on my Furnished Holiday Let?

Not on new expenditure incurred from 6 April 2025 onwards. Existing balances in a capital allowances pool at that date can continue to be written down at the relevant WDA rates against ongoing property business profits.

What is the AIA limit in 2026?

The Annual Investment Allowance is permanently set at £1 million per year and remains at that level in 2026.

What is the new 40 percent First Year Allowance?

A permanent first year allowance, introduced from 1 January 2026 for corporation tax and 6 April 2026 for income tax, that gives 40 percent relief on qualifying new main pool plant and machinery. Unlike Full Expensing, it is available to sole traders and partnerships and to assets bought for leasing.

Has the writing down allowance rate changed?

Yes. From April 2026 the main pool WDA rate falls from 18 percent to 14 percent. The special rate pool stays at 6 percent.

How far back can I claim missed capital allowances?

If a qualifying asset is still owned and used by the business, missed allowances on past expenditure can often still be claimed, subject to pooling rules and any section 198 election that should have been made at the point of purchase.