In this article 8 sections
Chancellor John Healey delivered the Autumn Budget on 28 October 2026. For capital allowances it was a Budget of two halves: a bigger first-year allowance for new plant, paid for by a further cut to the main pool writing down allowance. The reliefs most of our clients rely on, the Annual Investment Allowance and full expensing, are untouched.
Here is what changed, who it affects, and what we are doing about it.
Main rate first-year allowance rises to 50%
The 40% first-year allowance introduced at Budget 2025 rises to 50% for qualifying expenditure incurred on or after 1 January 2027. It applies to new and unused main-rate plant and machinery. Cars and second-hand assets are excluded, as are assets leased overseas.
The allowance is available to companies and to unincorporated businesses, and it covers plant bought for leasing. That matters because full expensing is only available to companies and does not cover plant bought to lease to someone else. HMRC says the measure particularly benefits unincorporated businesses and businesses investing in plant or machinery for leasing.
The change will be made in Finance Bill 2026-27 by amending section 52(3) of the Capital Allowances Act 2001.
Main pool writing down allowance cut to 12%
The main rate writing down allowance falls again, from 14% to 12% a year. It had already been cut from 18% to 14% in April 2026.
- Corporation tax: chargeable periods beginning on or after 1 April 2027.
- Income tax: from 6 April 2027.
- Accounting periods that straddle the change get a hybrid rate, worked out by reference to how much of the period falls before and after the change date.
The lower rate applies to existing main pool balances, not just new spending. Anything already sitting in the pool will now take longer to relieve. The special rate pool, which covers integral features such as lighting, heating and air conditioning, stays at 6%.
The government expects the combined changes to raise money: the Budget costings show an Exchequer gain of £765m in 2027-28, rising to more than £1bn a year from 2028-29.
What stays the same
- Full expensing continues: companies can still deduct 100% of new main-rate plant and 50% of new special-rate plant in the year of spend.
- The Annual Investment Allowance stays at £1m a year. It is the main route to immediate relief on fixtures bought with a building, because it is not limited to new assets.
- Corporation tax: the government confirmed it is capping the headline rate at 25%.
Predevelopment costs after Orsted
Following the Supreme Court’s decision in Orsted in April 2026, which held that early-stage survey and study costs were not expenditure “on” the provision of plant, the government consulted from 13 July 2026 on the tax treatment of predevelopment costs. It published its summary of responses with the Budget.
The government will not change the capital allowances legislation immediately. Instead it will work with stakeholders on clearer HMRC guidance, with more worked examples, on how the existing rules apply to predevelopment expenditure. It will consider targeted legislative changes if guidance alone is not enough. The wider consultation on Corporate Tax Simplification for Business Investment closes on 21 November 2026.
For now, our approach is unchanged: fees and preliminaries are allocated item by item, with the link between each fee and the plant it relates to documented in every report. Read our Orsted article.
Land Remediation Relief: no change
The government consulted over the summer on reforming Land Remediation Relief, including the derelict land test and timing for developers. At the Budget it decided not to proceed with any changes at this time. The relief stays as it is, and HMRC will review its guidance.
Lease and leaseback arrangements
From 28 October 2026, the definition of a finance lease used in the lease and leaseback anti-avoidance rules (section 228G CAA 2001) is widened to include lessees holding certain right-of-use leases. This affects sale and leaseback structures rather than ordinary purchases and fit-outs.
Other changes property owners should know about
- Property income tax rates rise by a further two percentage points from 6 April 2027, to 24%, 44% and 49%. Capital allowances reduce taxable rental profit, so for individual landlords each pound of allowances is worth more tax relief at these rates.
- ATED charges increase by 3.5% from 1 April 2027.
What to do now
- Check what you haven’t claimed. Unclaimed allowances in property you already own can still be claimed, and the AIA can still give 100% relief on up to £1m of qualifying expenditure a year.
- Partnerships, sole traders and leasing businesses planning major spend on new plant beyond the AIA should look at timing around 1 January 2027, when the first-year allowance rises to 50%.
- Owners with large main pool balances will see slower relief from April 2027. Making sure qualifying spend is claimed under the AIA or a first-year allowance, rather than left in the pool, matters more than ever.
If you own commercial property or have a fit-out or development under way, speak to our team or get a personalised estimate.
Sources: HMRC policy paper, Capital allowances: reduce the main rate writing-down allowance and increase the main rate first-year allowance (29 October 2026); Budget 2026; Tax treatment of predevelopment costs: summary of responses (28 October 2026).
