Budget 2026: Capital allowances
The 2026 Budget announced changes to the rates of capital allowances.
Capital allowances allow taxpayers to deduct some of their capital expenditure from their income to reduce their taxable profits. There are a number of different regimes whereby taxpayers can set the full value or a proportion of their expenditure against income. For long term assets, the value of their expenditure is collected in “pools” depending on the nature of the asset, and each year a set proportion of that pool can be deducted from income, with the total pool value falling by a corresponding amount.
For claimants who are unable to claim full expensing (sole traders and partnerships), there is a 40% main-rate first year allowance for qualifying expenditure on main-rate plant and machinery. The Budget commits to increase this to 50% for expenditure incurred on or after 1 January 2027, meaning that more expenditure can be deducted in the first year that it is incurred.
However, simultaneously, the Government is reducing the writing down allowance from 14% to 12%. Historically main pool items were written off at 18% per year (meaning 18% of the current tax written down value of the pool was able to be deducted against income). This was reduced to 14% from April 2026 and will be reduced to 12% from April 2027, meaning that taxpayers will get a smaller amount of writing down on their capital allowance main pool going forward, meaning it will take longer to fully deduct the value of expenditure that does not qualify for immediate deduction.
Capital allowances and the transfer of them are a regular feature on property asset transactions and an area we regularly advise on. If you would like to discuss how the changes in the Budget impact you or your business, do contact a member of our team.
