A capital allowance claim on commercial property can reduce the taxable profits of businesses and property investors where qualifying expenditure has been incurred on plant, machinery, fixtures, integral features or certain non-residential structures.
For buyers and existing owners, the value is often hidden within the building rather than obvious from the purchase contract. Heating systems, electrical installations, lifts, ventilation, security systems and other fixtures may all need to be reviewed separately.
This makes capital allowances for commercial property owners an important part of tax planning when acquiring, refurbishing, fitting out or selling a commercial building.
The rules can become particularly important during a property purchase, where historic claims, pooling requirements and a section 198 election may determine how much relief is available to the buyer.
Capital allowances allow qualifying capital expenditure to be deducted from taxable profits under the rules set out in the Capital Allowances Act 2001.
They are different from accounting depreciation.
A business may depreciate an asset in its financial accounts, but the tax deduction is calculated separately under the capital allowances rules.
The government’s capital allowances guidance explains the main categories of relief available.
For commercial properties, qualifying expenditure can potentially include:
A capital allowance claim on commercial property therefore normally requires more than simply applying a percentage to the total building price.
The expenditure first needs to be identified and classified correctly.
Capital allowances for commercial property owners can arise in several different situations.
These include:
Eligibility depends on who incurred the expenditure, the type of asset and how the property is used.
Commercial property businesses can qualify for plant and machinery allowances on eligible expenditure, but the treatment of residential property is more restrictive.
Plant and machinery can include assets used in carrying on the business rather than the basic fabric of the building itself.
Examples may include:
The exact treatment depends on the nature and function of the asset.
Where expenditure qualifies for the main pool and no first-year relief or AIA is claimed, the current writing-down allowance rate is 14% from April 2026.
This replaced the previous 18% main-pool rate.
Businesses should therefore avoid relying on older capital-allowance schedules that still assume 18% for current accounting periods.
Integral features are treated differently from ordinary main-pool plant and machinery.
HMRC identifies integral features, including:
These items generally enter the special-rate pool.
The current writing-down allowance for the special-rate pool is 6%.
Businesses may instead be able to use another available allowance, such as AIA, where the conditions are satisfied.
Correct classification matters because putting expenditure into the wrong pool can affect both the timing and amount of tax relief.
The Annual Investment Allowance can provide 100% relief on qualifying plant and machinery expenditure up to the available annual limit.
The current AIA limit is £1 million.
It can generally be used for qualifying expenditure on plant and machinery, including many special-rate assets.
For commercial property projects, this can make AIA particularly useful for expenditure such as:
The allowance available may need to be adjusted where an accounting period is shorter or longer than 12 months or where connected businesses share an allowance.
Companies may also qualify for full expensing and the 50% first-year allowance.
Full expensing provides a 100% first-year deduction for qualifying new and unused main-rate plant and machinery.
The 50% first-year allowance applies to qualifying new and unused special-rate plant and machinery.
These allowances are available to companies rather than individuals or ordinary partnerships.
They can be particularly relevant where a company undertakes a substantial commercial-property fit-out involving new equipment or building systems.
However, the business cannot claim multiple allowances on the same expenditure.
The most appropriate mix of full expensing, AIA and writing-down allowances depends on the expenditure and the taxpayer’s circumstances.
The Structures and Buildings Allowance provides relief for qualifying expenditure on constructing or renovating certain non-residential structures and buildings.
The standard SBA rate is 3% per year on a straight-line basis.
This generally provides relief over 33⅓ years.
SBA can apply to qualifying construction and renovation expenditure, but it does not cover:
A valid allowance statement is important.
Where an existing qualifying building is sold, the purchaser generally needs the allowance statement from the previous owner in order to continue claiming the remaining SBA.
Tax relief for commercial property purchases can be particularly valuable because the purchase price may include qualifying fixtures and integral features that are not separately identified in the sale contract.
For example, a buyer may acquire:
The tax treatment of those fixtures depends partly on the seller’s capital-allowance history.
That is why capital allowances should be considered during the transaction rather than after completion.
For certain fixtures transferred with a second-hand commercial property, the seller may need to have brought the relevant expenditure into a capital-allowance pool before the purchaser can obtain allowances.
This is commonly known as the pooling requirement.
Pooling does not necessarily mean the seller must have claimed every available writing-down allowance.
However, the relevant qualifying expenditure generally needs to have been recognised appropriately in the seller’s capital-allowance position.
If the rules are not dealt with correctly, the purchaser can lose access to allowances on those fixtures.
A section 198 election is a joint election between the seller and purchaser used to fix the amount of the property sale price attributed to qualifying fixtures for capital allowance purposes.
The election is made under section 198 of the Capital Allowances Act 2001.
The amount agreed can determine:
The election must contain sufficient information to identify the parties, the property and the relevant fixtures.
It is generally subject to a two-year time limit.
This is one reason buyers should not leave the capital-allowance discussion until long after completion.
A joint election is the normal way in which the fixed-value requirement is satisfied where the relevant conditions apply.
However, it is not correct to say that a section 198 election is the only possible route in every case.
Where the buyer and seller cannot agree the value, either party may be able to apply to the First-tier Tribunal to determine it.
The application generally needs to be made within the relevant two-year period.
The exact approach therefore depends on the property’s history, previous claims and the status of the seller.
Commercial Property Standard Enquiries can help identify the capital-allowance history of a building before completion.
Buyers and their advisers should establish:
Incomplete responses should be investigated rather than assumed to mean no allowances are available.
The capital-allowance position can materially affect tax relief for commercial property purchases, so it should form part of the tax and legal due-diligence process.
A common search question is: can you claim capital allowances on investment property?
For commercial property, the answer can be yes.
A UK property business can qualify for plant and machinery allowances on eligible assets used in a commercial property business, subject to the normal capital-allowance rules.
For example, a commercial landlord may potentially claim on qualifying:
SBA may also be available for qualifying non-residential construction expenditure.
The position is different for residential dwelling-houses, where plant and machinery allowance rules are more restrictive.
The answer to can you claim capital allowances on investment property therefore depends heavily on what kind of property is involved.
A commercial office, shop, warehouse or other non-residential investment property can contain qualifying assets even where the owner does not occupy the property for its own trade.
The property business itself may be the qualifying activity.
However, entitlement must still be checked against:
Capital allowances should also be reviewed whenever a commercial property is refurbished or fitted out.
Projects may contain several categories of expenditure within one contractor invoice.
For example, a refurbishment could contain:
A detailed cost breakdown makes it easier to separate expenditure between plant and machinery, integral features and SBA.
Businesses undertaking substantial work may also find our business tax planning guide useful when considering the timing of expenditure and available reliefs.
Capital allowance claims need evidence.
Useful records can include:
Where the original purchase documentation does not separate individual fixtures, specialist valuation work may sometimes be required.
Claims should be based on supportable evidence rather than arbitrary percentages.
Commercial property owners sometimes discover qualifying expenditure years after the original purchase.
In some circumstances, qualifying expenditure that has not previously been pooled may still be brought into the capital-allowance computation.
However, the position depends on:
A missed claim should therefore be reviewed individually rather than assuming all historic expenditure can automatically be recovered.
Capital allowances also matter when a commercial property is sold.
The seller should understand:
SBA also needs separate attention.
Where the purchaser is to continue claiming SBA, the relevant allowance statement should pass with the property.
Poor handling of the capital-allowance position during a sale can create tax issues for both parties.
The value of a claim depends on the amount and type of qualifying expenditure.
A commercial building may contain substantial expenditure on electrical systems, heating, cooling, lifts, water systems and specialist equipment.
In some cases, these assets are not separately identified when the building is bought.
A review can therefore uncover qualifying expenditure that would otherwise remain within the undifferentiated property purchase price.
The actual tax benefit depends on:
The purpose of a review should therefore be to identify supportable qualifying expenditure, not to apply a predetermined percentage to every building.
For current claims, businesses need to use the correct rates.
From April 2026:
The main-pool rate was previously 18%.
If an accounting period crosses the date of the rate change, a hybrid rate may need to be calculated.
This is an important freshness update for businesses using older capital-allowance schedules.
The special furnished holiday lettings tax regime ended in April 2025.
Former FHL businesses no longer receive the previous special capital-allowance treatment for new expenditure.
Transitional rules can still apply to expenditure already brought into a capital-allowance pool before abolition.
This means older guidance treating furnished holiday lets as an ongoing separate capital-allowance category should not be relied on for new 2026 expenditure.
Apex Accountants can support capital allowances for commercial property owners at different stages of the property lifecycle.
Our work can include:
Businesses can also use our tax planning services to consider capital allowances alongside wider Corporation Tax and investment planning.
For construction businesses and technical contractors, our guide to capital allowances for M&E companies explains how similar principles can apply to qualifying mechanical and electrical expenditure.
Anyone considering a purchase should address the capital-allowance position before exchange where possible.
That means establishing:
This is often the most effective stage to protect tax relief for commercial property purchases because the relevant points can still be reflected in the sale documentation.
Commercial property owners may claim capital allowances on qualifying fixtures, plant and machinery, including heating, electrical systems and lifts. Eligible construction expenditure may also qualify for the Structures and Buildings Allowance at 3% annually.
Yes. Buyers may claim allowances on qualifying fixtures within commercial properties, subject to the seller’s previous claims and applicable pooling and fixed-value requirements. A section 198 election commonly establishes the agreed transfer value.
Yes. Commercial investment properties may qualify for capital allowances on eligible plant, machinery and embedded fixtures. Structures and Buildings Allowance may also continue where qualifying expenditure, allowance statements and other conditions are satisfied.
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