View the related Tax Guidance about Integral features
Capital allowances â overview
Capital allowances â overviewDefinition of capital allowancesIn the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the chargeable profits of a trade because it is an item of a capital nature. See the Capital vs revenue expenditure guidance note. Instead, relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits. Likewise, any charges are treated as taxable receipts. In addition to traders (self-employed individuals, partnerships or trading companies), capital allowances can also be claimed by for expenditure incurred by property businesses and certain other qualifying activities. See the Capital allowances â general requirements guidance note.Summary of rates â capital allowancesThe following table summarises the main capital allowances available, the rate of the allowance and if relevant any important dates or points to note, for further details including any relevant qualifying conditions or restrictions see the relevant guidance note as linked in the table.It was announced at the Autumn Statement 2023 that the initially temporary first-year allowances for expenditure on plant and machinery incurred by a company in the period from 1 April 2023 which was due to end on 31 March 2026 will be made permanent. For main rate expenditure (which would otherwise qualify for a writing-down allowance at the main rate) the FYA is 100%. For special rate expenditure, the FYA is 50%.
AâZ of capital allowances
AâZ of capital allowancesWhat capital allowances are available?When calculating taxable profits or allowable losses for a business, it may be possible to claim capital allowances on expenditure on items which are capital in nature. There are various types of capital allowances available with the most common type being plant and machinery. To be able to claim capital allowances, the expenditure must be qualifying expenditure for the type of allowance being claimed. For some allowances, qualifying expenditure is defined by the legislation, but for others there is case law which determines whether the item is qualifying.This schedule is an alphabetical list of items and their treatment for capital allowance purposes based on CAA 2001 and also on decided cases. The availability of any allowance will be subject to the qualifying conditions for that allowance being met and the relevant guidance note, legislation and HMRC guidance should be reviewed to confirm the position (although HMRC guidance does not have the force of law). Items in the list may also qualify for the annual investment allowance on plant and machinery or first year allowances. For more details, see the Annual investment allowance (AIA) and First year allowances guidance notes.The list is not exhaustive but a summary of the more common types of assets â to search for an item on the page, use âCtrl+Fâ. For a detailed discussion of the meaning of plant and machinery, see Simonâs Taxes B3.306.Item of expenditureCapital
What is plant and machinery?
What is plant and machinery?Legislative definition of plant and machineryThe general rule allowing capital allowances on plant and machinery is given at CAA 2001, s 11. There is no statutory definition of the term âplant and machineryâ but there is confirmation in the legislation on what constitutes a building or a structure and what is therefore not plant and machinery, and these details are set out below. Otherwise, the definition of plant and machinery has been developed through case law, which is also reviewed below.The legislation does list some items which do qualify as plant and machinery with the main category of items being integral features, which are described further in the Special rate pool and long life assets guidance note. Other items specifically qualifying as plant and machinery are:â˘building alterations connected with installation of plant and machineryâ˘demolition of plant and machineryâ˘thermal insulation on a commercial property which is already in use, andâ˘expenditure on personal security assets where there is a special threat to an individual which arises from their qualifying activityCAA 2001, ss 25â28, 33Capital allowances are not available for plant and machinery used for business entertainment. Hospitality of any kind counts as business entertainment. However, plant and machinery provided by a business for its employees and directors is not considered to be provided for business entertainment and so capital allowances will therefore be available in this instance. Buildings and capital allowance expenditureBuildings are part of the setting in which the business is carried
Special rate pool and long life assets
Special rate pool and long life assetsSpecial rate poolExpenditure on some types of plant or machinery must, if neither annual investment allowance (AIA) nor first year allowances (FYAs) are available, be allocated to a âspecial rate poolâ. Expenditure to be allocated to the special rate pool consists of expenditure incurred on:â˘integral features, see belowâ˘long life assets, see belowâ˘thermal insulation of buildings used in a businessâ˘new or second-hand cars with CO2 emissions of more than 50g/km (reduced from more than 110g/km in April 2021), andâ˘solar panelsCAA 2001, s 104A(1)The annual writing down allowances available on the special rate pool is 6%.Expenditure that would otherwise fall into the special rate pool is eligible for the AIA, with the exception of cars and certain other exclusions, see the Annual investment allowance (AIA) guidance note. In some cases, expenditure may also be eligible for FYAs, including a 50% FYA for special rate expenditure incurred by companies on or after 1 April 2023 , if it meets the necessary conditions, see the First year allowances guidance note. There was also a temporary first year allowance of 50% for new special rate plant and machinery acquired from 1 April 2021 to 31 March 2023 but only for companies, see the Super-deduction and special rate first year allowance guidance note. The 6% WDAs for the special rate pool is significantly lower than the 18% rate for the general pool. The time taken to receive 80% of the tax relief available on
Capital allowances â property transactions and fixtures
Capital allowances â property transactions and fixturesDefinition of fixturesA fixture is defined for capital allowance purposes as plant or machinery that is installed or fixed in or to a building or land so as to become, in law, part of that building or land and also specifically includes any boiler or water-filled radiator installed in a building as part of a space or water heating system. Examples of fixtures include:â˘lifts and escalatorsâ˘heating, lighting and electrical systemsâ˘alarm systemsâ˘sanitary appliances, and hot and cold water systemsâ˘telephone and data installationsCAA 2001, s 173However, the definition of fixtures is much wider than the list shown above and can include, for example, individually small items such as signs and door furniture. Consequently, it is practically inconceivable that a building will not contain assets on which capital allowances could potentially be claimed.Indeed, it is often easier to define what is not a plant and machinery fixture. In the context of a property transaction, any expenditure on the building itself (that is to say, the âbricks and mortarâ) and expenditure relating to the land on which the property stands, is excluded from being regarded as in respect of fixtures, and will not qualify for plant allowances.Such expenditure may qualify for structures and buildings allowances, at much lower rate, see the Structures and buildings allowance guidance note.In order to claim capital allowances on a fixture the business must own the fixture because they have incurred expenditure on it and also must have
Furnished holiday lets
Furnished holiday letsThis guidance note sets out the qualifying conditions for a property let to be treated as a furnished holiday let (FHL) for tax purposes and the subsequent tax implications. The Government has announced at the Spring Budget 2024 the abolition of the furnished holiday let (FHL) tax regime from April 2025. To prevent using unconditional contracts to access the beneficial capital gains tax treatment the proposed legislation will also include an anti-forestalling rule which will apply from 6 March 2024. Whether or not a property qualifies as an FHL can make an important difference to the taxation implications. In particular, the letting of furnished holiday accommodation can benefit from a more beneficial regime in some respects. The main benefits of an FHL is that it is treated like a trade for certain purposes which can be advantageous for the purposes of capital allowances, capital gains reliefs, interest costs, pension contributions and national insurance, see more details on each of these areas below. The accommodation can be a house, cottage, flat, suite of rooms, caravan or even a yurt so long as it meets the specific conditions to qualify as an FHL which are detailed below.See also Simonâs Taxes B6.4 and HMRC Helpsheet HS253.For a client factsheet which summarises the key tax implications for an individual renting out a holiday home see the Client factsheet â renting out a holiday home. The treatment of UK FHL is extended to those within the European Economic Area (EEA) that would
Capital allowances â general requirements
Capital allowances â general requirementsIn the broadest sense, capital allowances are a form of tax-approved depreciation. Depreciation, as calculated under GAAP, is not an allowable deduction in computing the profits of a trade chargeable to income tax or corporation tax because it is an item of a capital nature. See the Capital vs revenue expenditure guidance note. Instead, relief is given by treating the capital allowances as an expense to be deducted when arriving at the taxable trading profits. Likewise, any charges are treated as taxable receipts. The relevant legislation is set out in the Capital Allowances Act 2001.Types of capital allowancesCapital allowances are only available for a limited range of assets, each with a separate set of rules, the main ones are:â˘plant and machinery including cars, see the What is plant and machinery? and Capital allowances on cars guidance notesâ˘integral features and long-life assets, see the Special rate pool and long life assets guidance noteâ˘research and development facilities, see the Research and development tax relief â capital expenditure guidance noteâ˘structures and buildings (from 29 October 2018), see the Structures and buildings allowance guidance noteâ˘patents and know-how (non-corporate entities, as for companies intangibles are within the corporate intangible rules), see the Capital allowances for sole traders and partnershipsThere are also enhanced allowances including the annual investment allowance and the super-deduction and special rate first year allowance available up to 31 March 2023 and first year allowances on plant and
Annual investment allowance (AIA)
Annual investment allowance (AIA)Amount of the allowanceAn AIA is available for expenditure incurred on plant or machinery on or after 1 April 2008. The maximum amount of AIA available has varied significantly over recent years and the latest amounts are as follows:Maximum annual allowancePeriod qualifying expenditure incurred£1,000,000From 1 January 2019 £200,0001 January 2016 until 31 December 2018£500,0006 April 2014 (1 April 2014 for companies) until 31 December 2015CAA 2001, ss 38A, 51A(5); F(No 2)A 2023, s 8The level of AIA from 1 January 2019 was initially a temporary maximum of £1,000,000 but this has now been made permanent. The transitional rules, which are to be applied when calculating the AIA for accounting periods which straddle the dates above, are discussed in further detail below. The AIA cannot be claimed on expenditure incurred, or deemed to be incurred, on:â˘carsâ˘assets of a ring-fence trade (ie a trade relating to oil extraction activities etc) where a supplementary charge applies under CTA 2010, s 330â˘giftsâ˘assets previously used by the owner for a non-qualifying activityâ˘assets previously used for leasingâ˘a sale and leaseback where the leaseback is a long funding lease (see the Capital allowances on cars guidance note)CAA 2001, s 38BThe Capital Allowances first year allowances and the AIA (A) video provides an illustration of the calculation of capital allowances where the AIA is available, as well as details of restrictions on the AIA. It also includes the calculation of the
Short-life assets
Short-life assetsShort-life assetsA short-life asset is an asset with a predicted useful life of less than eight years. Certain assets are excluded from short-life asset treatment. These include cars and assets with partial non-business use. Expenditure within the special rate pool (integral features and long-life assets, see the Special rate pool and long life assets guidance note) is also excluded.If a business acquires an asset and does not expect it to last for more than eight years, the business can make an election to depool that asset. The effect of the election is that the asset is thereafter dealt with separately for tax purposes, ie the asset does not enter the general pool but instead requires its own separate capital allowances computation. There is
Capital allowances computations
Capital allowances computationsPlant and machinery allowancesThree types of allowance are available for expenditure on plant and machinery:â˘the annual investment allowance (AIA), which currently provides a 100% allowance for the first £1,000,000 of expenditure per year, see the Annual investment allowance (AIA) guidance noteâ˘first year allowances (FYAs), which also provide a 100% allowance for expenditure, but restricted to particular types of plant and machinery this includes full-expensing on new plant and machinery by companies, see the First year allowances guidance note, andâ˘writing down allowances, which provide a percentage allowance of 18% or 6% per year (18% or 8% prior to April 2019)There is also a temporary super-deduction of 130% and FYA of 50% on qualifying new plant and machinery acquired between 1 April 2021 and 31 March 2023. For more details, see the Super-deduction and special rate first year allowance guidance note.In addition, balancing allowances and balancing charges may arise in some circumstances where assets are disposed of or the business ceases.To compute writing down allowances, balancing allowances and balancing charges, expenditure is âpooledâ. The different types of pools are:â˘the main rate or general pool â includes most types of plant and machinery where not included in other poolsâ˘special rate pool â mainly integral features, see the Special rate pool and long life assets guidance noteâ˘single asset pools when there has been a short-life asset election, see the Short-life assets guidance noteâ˘single asset pools when assets are used by unincorporated businesses both for
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