Understanding capital allowances: A guide for property owners

Owning or improving commercial property often involves big-ticket spending on fixtures and fit-out. Done right, capital allowances can turn part of that spend into lower tax, stronger cashflow and better returns. This guide for property owners explains how the rules work in 2025/26, what’s changed, and where claims are commonly missed. It matters now because the Annual Investment Allowance (AIA) remains at £1 million, full expensing is permanent for companies, and the structures and buildings allowance (SBA) continues at 3% a year – all of which can bring meaningful relief on qualifying projects (HMRC capital allowances overview; Autumn Statement: full expensing; SBA guidance)

There’s also a timing angle. The furnished holiday lettings (FHL) regime has been abolished from April 2025, removing some capital allowance advantages for those businesses and creating transitional choices if you own short-stay property (HMRC FHL abolition). Investment conditions are mixed, too: the Office for National Statistics reports UK business investment fell by 1.1% in Q2 2025 on revised estimates – a reminder to secure tax reliefs to support project business cases (ONS, 2025).

What capital allowances cover

Capital allowances give tax relief for qualifying capital spend. For property, the main buckets are plant and machinery (including many fixtures), integral features, and the SBA for non-residential structures. In practice, a well-prepared claim starts with a detailed cost breakdown. If you’re planning a refurbishment or acquisition, we can help scope allowances early so you can price works, time orders and manage cashflow. If you’re unsure where to start, speak to our team through our homepage.

Common qualifying items include:

• Plant and machinery: Moveable items and certain building-embedded assets that perform a function, not part of the fabric.
• Integral features: Electrical systems, lighting, cold-water systems, heating and air-con, lifts and similar building systems – see HMRC: what you can claim on.
• Structures and buildings allowance: Qualifying non-residential construction and renovation costs at 3% straight-line a year, normally over 33 and one-third years (HMRC SBA guidance).

The big levers in 2025/26 – a guide for property owners

The current toolkit is generous if you plan ahead:

• Annual Investment Allowance: 100% relief on qualifying plant and machinery up to £1 million per 12-month period. This is available to companies and unincorporated businesses, so it can cover many property-related fixtures (HMRC, 2025).
• Full expensing for companies: 100% first-year deduction for qualifying main-pool assets, plus a 50% first-year allowance for special rate assets such as many integral features, with the balance written down in later years. The measure has been made permanent, supporting long-term investment planning (HM Treasury/HMRC, 2024) – full expensing technical note.
• Structures and buildings allowance: 3% a year on eligible non-residential build or renovation costs. Keep clear dates for when the structure first comes into use and when costs are incurred, as that drives the 33-and-a-third-year claim window.

Buying or selling a commercial property – don’t miss the fixtures election

Many claims are lost during property transactions because fixtures aren’t dealt with in the contract. If you’re buying or selling, pay close attention to the section 198 election:

• Section 198 election: Buyer and seller agree how much of the price relates to fixtures, locking down the value for capital allowance purposes. The standard time limit is two years from completion – see HMRC Capital Allowances Manual: CA26850.
• If you skip it: Future owners can be barred from claiming allowances on those fixtures, even though they paid for them; sellers may also face uncertainty over disposal values – HMRC helpsheet HS252.
  

Practical tip: Instruct your lawyers and surveyors to identify fixtures early and ensure contract wording anticipates the election. We routinely support clients with due-diligence schedules, so speak to us before heads of terms are finalised.

Refurbs and fit-outs – examples you can use

A few scenarios to show how the allowances interact:

• Warehouse upgrade: You install new LED lighting, a three-phase electrical upgrade and destratification fans. Integral features: Likely special rate assets. Relief: Consider AIA for 100% deduction; if AIA is already used, a company could claim 50% first-year allowance on the special rate spend, then write down the balance.
• Office refit: New data cabling, hot-water system, air-conditioning and modular workstations. Mix of main pool and special rate: Use AIA to prioritise the special rate items first, as they otherwise attract slower relief. SBA: If you move internal walls as part of a wider non-residential renovation, some structural costs may fall into SBA.
• New build industrial unit: SBA: Claim 3% a year on eligible construction and renovation costs. Fixtures: Specify, cost and segregate qualifying plant and integral features during the build so you can use AIA and first-year allowances promptly. Keep a robust asset register and contractor breakdowns.

In each case, good records control the outcome. We map contractor invoices to tax categories, then optimise the mix of AIA, first-year allowances and SBA to bring forward relief while staying compliant.

Residential, mixed-use and the end of FHL relief

Residential property remains restricted for plant and machinery allowances, but common areas in multi-let buildings and genuine commercial spaces can still qualify. From 6 April 2025 for Income Tax and 1 April 2025 for Corporation Tax, the FHL regime is abolished, removing specific capital allowances and certain CGT reliefs that previously applied. If you’re affected, you may need to reassess planned refurbishments and consider timing for expenditure and any business cessation steps referenced in HMRC’s clarification note.

Mixed-use properties often hide value. Shops with flats above, care facilities with staff accommodation, or offices with communal amenities all need a careful split between qualifying fixtures, SBA-eligible spend and non-qualifying fabric. We can review drawings and cost plans to ring-fence relief early.

Record-keeping and claim mechanics – simple habits that pay off

Small steps make claims smoother:

• Detailed cost breakdowns: Ask contractors for schedules that separate equipment, installation and building works.
• Asset registers: Description, location and unique tag. Keep each asset identifiable.
• Project governance: Approvals and dates. Keep evidence of when assets were ordered, delivered and brought into use – that affects which period the claim sits in.
• Transactions: Section 198 election: Put it on your legal checklist for every commercial property deal.

Bringing it together for your next project

Capital allowances remain one of the most effective ways for property owners to reduce tax and shore up cashflow. With AIA at £1 million, permanent full expensing for companies, and SBA at 3%, well-planned projects can recover a meaningful portion of costs. But risk sits in the details – from missed section 198 elections, to mis-categorised integral features, to the new position for holiday-let businesses after April 2025. The ONS’s latest figures show investment is under pressure (ONS, 2025), so it’s sensible to lock in every relief you’re entitled to – and to do it early.

If you’re planning a purchase, refit or build and want a straightforward guide for property owners tailored to your plans, we can help you scope the claim, coordinate your advisers and prepare compliant schedules. Get in touch for a no-obligation discussion about capital allowances for your next project.