Writing-Down Allowances and New Reliefs
In the 2025 Autumn Budget the UK Government announced significant changes to the capital allowances regime which are now coming into effect in 2026. These changes include a reduction in the rate at which writing down allowances (WDAs) are given, and the introduction of a new 40% first-year allowance (FYA) for qualifying expenditure. Property owners, investors and their advisers need to understand what has changed, when the new rules apply and how to plan effectively for tax relief on plant and machinery, including writing down allowances.
What is changing in 2026?
1) Writing-Down Allowance rate cut
From 1 April 2026 for Corporation Tax purposes, and 6 April 2026 for Income Tax purposes, the main rate writing-down allowance on qualifying plant and machinery is being reduced from 18% to 14% per year on a reducing balance basis.
This is a permanent change introduced in the Finance Bill 2025-26 and represents slower annual tax relief where accelerated allowances aren’t available.
2) New 40% First-Year Allowance
To offset some of this reduction HMRC introduced a new 40% first-year allowance (FYA) that applies to qualifying main rate plant and machinery acquired on or after 1 January 2026. This allowance can be claimed by both incorporated and unincorporated businesses and applies in situations where full expensing or the Annual Investment Allowance (AIA) cannot be used.
3) Hybrid WDA rates for straddling periods
If your accounting period covers the rate change dates, a hybrid WDA rate may apply, with apportionment between the 18% and 14% periods based on time spent before and after the change date.
Why these changes matter
The reduction in the writing-down rate means that capital allowances previously claimed at 18% per year will now be available at a slower 14% rate. For existing main pool balances and future additions that do not qualify for accelerated reliefs (AIA, full expensing or FYA), this will:
⚙️ increase taxable profits in earlier years
⚙️ extend the period over which tax relief is claimed
⚙️ affect cash flow, particularly for high levels of historic and future capital expenditure
The introduction of the 40% FYA provides accelerated relief for expenditure that may otherwise fall outside full expensing or the AIA. This is particularly relevant for leasing businesses, partnerships and sole traders who cannot always benefit from full expensing, and for assets that are excluded from full expensing such as leased assets or those above the AIA limit.
Practical examples of impact
For a commercial property owner with significant plant and machinery expenditure, the slower WDA rate means relief will be spread over more years compared with the previous 18% treatment. In contrast, applying the new 40% FYA to qualifying costs can bring a larger proportion of relief into the accounting period in which the expenditure is incurred, improving cash flow.
Planning considerations for property owners
🧠 review whether planned qualifying expenditure can benefit from the new FYA or AIA before relying on WDAs
🧠 assess timing of capital projects to optimise the interaction between FYA and the reduced WDA rate
🧠 consider implications for purchase agreements, particularly where leases or plant and machinery values are significant
🧠 ensure robust capital allowances reporting and election filing where appropriate
The value of specialist advice
Given the complexity of the new regime and the interaction between allowances, specialist capital allowances advice can help ensure you:
• identify the correct pool classification for assets
• maximise accelerated reliefs where possible
• understand the cash flow impact of slower WDAs
• align tax planning with broader commercial strategies
This matters whether you’re planning a refurbishment, acquisition, or ongoing investment. Mistakes in identification or classification can materially reduce tax relief.
Conclusion
The 2026 capital allowance changes represent a material shift in how tax relief is given for plant and machinery.
While the reduction in writing-down allowances slows the rate of tax relief, the new 40% first-year allowance offers a valuable tool for accelerating relief on qualifying expenditure.
Careful planning, well-informed timing of capital expenditure and specialist support are essential to preserving tax value in this new landscape.
If you have commercial property projects planned or questions about how these changes affect your allowances position, contact CA Select for detailed guidance.
