Buy a £600,000 commercial unit and the wiring, lighting, heating and pipework hidden behind the walls could easily represent £120,000 of qualifying capital allowances. Miss them, and you’ve quietly handed HMRC tax relief worth up to £30,000. Spot them, and you’ve turned bricks and mortar into real cashflow.

TL;DR

  • Capital allowances let you deduct qualifying plant, machinery and fixtures from taxable profits — they replace disallowed depreciation.
  • The Annual Investment Allowance gives 100% relief on up to £1 million of qualifying spend per year.
  • Full expensing offers companies unlimited 100% relief on new main-rate plant; a 50% first-year allowance covers special-rate assets.
  • Integral features (lighting, heating, water, air-con, lifts) are the most commonly missed item when buying property.
  • The Structures and Buildings Allowance (SBA) gives 3% straight-line relief on qualifying construction and renovation costs.

What capital allowances actually are

Capital allowances are the tax system’s way of letting you write off the cost of business assets against your profits. Accounting depreciation isn’t allowed for tax purposes, so HMRC provides its own set of reliefs instead.

They’re available to limited companies, sole traders and partnerships. Whether you’re a property investor putting a warehouse to work, a trading company fitting out a new office, or a retailer buying a shop unit, the same broad framework applies — though some reliefs (like full expensing) are companies-only.

The official starting point is the GOV.UK capital allowances overview, but the practical detail is where most claims are won or lost.

The main reliefs in 2025/26

There are several reliefs running in parallel, and a well-structured claim picks the right one for each item of spend.

Annual Investment Allowance (AIA)

The AIA gives 100% relief on up to £1 million of qualifying plant and machinery each year. It’s available to companies and unincorporated businesses alike, and it can be set against integral features as well as general plant. For most owner-managed businesses, the AIA does the heavy lifting.

Full expensing

Full expensing is a permanent 100% first-year deduction on new and unused main-rate plant and machinery. There’s no cap, but it’s limited to companies. If a company buys new qualifying equipment as part of a property fit-out, full expensing can take the entire cost out of taxable profits in year one.

50% first-year allowance

For companies investing in new special-rate assets — which includes most integral features — there’s a 50% first-year allowance. The remaining 50% then enters the special rate pool for ongoing writing down allowances.

Writing down allowances

Where no other relief applies, writing down allowances (WDAs) kick in: 18% per year on the reducing balance for the main pool, and 6% for the special rate pool. Slower, but the relief still comes through.

Looking ahead: 40% FYA from January 2026

At Budget 2025, the Government announced a new 40% first-year allowance for qualifying plant and machinery from 1 January 2026, extending to unincorporated businesses and to leasing. Worth flagging on any large project that straddles the date.

Integral features: where the real value hides

If there’s one area where buyers of commercial property regularly miss out, it’s integral features. These are the special-rate assets embedded into the fabric of a building, and they include:

  • Electrical and general lighting systems
  • Cold water systems
  • Space and water heating, ventilation and air conditioning
  • Lifts, escalators and moving walkways
  • External solar shading

HMRC sets out the definitions in its Capital Allowances Manual at CA22310. These items go into the special rate pool (6% WDA), but the AIA can be claimed against them up to the £1 million limit, and companies may use the 50% first-year allowance on new spend.

The biggest mistake we see is treating a property purchase as a single number on a completion statement. Behind that number is often six figures of qualifying fixtures — but only if someone looks for them before the file is closed.

When you buy a second-hand commercial property, identifying the qualifying value isn’t automatic. A fixtures apportionment is usually needed, and in many cases a formal s.198 election between buyer and seller fixes the value passing across. Get it wrong at the point of purchase and the relief can be lost forever — which is exactly why a capital allowances review is worth commissioning before contracts are signed.

Structures and Buildings Allowance (SBA)

Plant and machinery reliefs cover what’s inside the building. The Structures and Buildings Allowance covers the building itself.

Introduced on 29 October 2018, the SBA gives 3% straight-line relief per year — over 33 and one-third years — on qualifying construction, renovation or conversion costs of non-residential structures and buildings. Land doesn’t qualify, and neither does residential property.

One critical point: you need a written allowance statement to make a claim. If you’re buying a used structure where SBA has already started to run, you’ll need a copy of the statement from the previous owner. No statement, no claim. Full guidance is on GOV.UK’s SBA page.

AIA vs full expensing: which to use

For companies, both the AIA and full expensing offer 100% relief on qualifying spend in the year of purchase. So when does the choice matter?

When the AIA wins

The AIA covers second-hand assets as well as new, and it covers integral features. Full expensing is restricted to new, unused, main-rate plant. If you’re buying a fitted-out office where most of the value sits in existing electrical and HVAC systems, the AIA is your route — full expensing simply won’t reach those items.

When full expensing wins

If a company is spending well above £1 million on new main-rate equipment — say, a manufacturing fit-out with new production machinery — full expensing has no cap, while the AIA does. In that case, you’d typically reserve the AIA for special-rate spend (which full expensing can’t touch) and run main-rate spend through full expensing.

In practice, the right answer depends on what you’re buying, when, and through which entity. A few hours of planning before the deal completes can be worth tens of thousands.

Making the claim: practical steps

Capital allowances are claimed through your tax return — corporation tax for companies, self assessment for sole traders and partnerships. The process is straightforward in theory; in practice, the value lies in the preparation.

  • Keep every invoice, contract and completion statement relating to the purchase or fit-out.
  • For property purchases, commission a fixtures review before contracts are exchanged where possible.
  • Agree a s.198 election with the seller where appropriate, to fix the value of fixtures.
  • Obtain or prepare an SBA allowance statement where qualifying construction or renovation has occurred.
  • If you use the cash basis, check the restrictions — some allowances aren’t available.
  • Don’t assume an old purchase is too late. Allowances on fixtures can often still be claimed in a later year if no one has previously claimed them.

What to do next

If you’re about to buy commercial premises, are mid-way through a fit-out, or have bought property in recent years without a formal capital allowances review, there’s a strong chance relief is sitting on the table. The earlier you involve an adviser, the more you can capture — especially around fixtures apportionments and s.198 elections, which become much harder to fix after completion.

At Melon Accountants we work with company directors, owner-managers and property investors to maximise capital allowances on commercial property. That means full capital allowances reviews on purchases and refurbishments, identifying overlooked integral features and fixtures, preparing and exchanging allowance statements, and structuring claims across AIA, full expensing, the 50% FYA and SBA to optimise both your tax bill and your cashflow. You can read more about our approach or browse our wider tax and advisory services.

If you’d like a friendly, no-obligation chat about a property you’re buying — or one you’ve already bought — get in touch with the Melon team. We’ll tell you honestly whether there’s value to be had, and how to claim it.

This article is general information only and not personal tax advice. Capital allowances depend on the specific facts of your purchase, your business structure and the timing of your spend — please take tailored advice before acting.