Capital Allowances for Commercial Property

Capital allowances are one of the few ways you can get HMRC to pay for part of your refurb. If you ignore them, you are leaving five figures of tax relief on the table on each decent-sized commercial deal.

1. Structures and Buildings Allowance (SBA): the slow, steady one

SBA sits in Part 2A Capital Allowances Act 2001, inserted after Finance Act 2019, and gives you tax relief on the "bricks and mortar" element.

Rate: 3% a year, straight-line, over 33 1/3 years, for qualifying expenditure incurred on or after 29 October 2018.

What it covers: the structure and building, not the plant inside it. Think walls, floors, roofs, main staircases, permanent structural alterations, professional fees directly linked to construction or renovation.

What qualifies:

New build commercial and industrial premises.

Renovation and conversion of non-residential buildings used in a UK property business (not residential or FHL).

You cannot claim SBA on:

Residential parts (flats above a shop, HMOs, standard BTLs).

Land cost and certain types of finance costs.

Relief is claimed annually in your tax return, under CAA 2001, and there is no balancing charge on sale: the relief just stops for you, and the buyer picks up the remaining allowance period if conditions are met.

Allowance Statement: without it, no SBA for buyers

For SBA to pass down the line on a purchase, you need an Allowance Statement that meets CAA 2001 s270IA requirements.

It must include:

Details identifying the building.

Date the structure came into qualifying use.

Total qualifying expenditure and dates.

If the original builder / developer or first owner never prepared this, subsequent purchasers cannot claim SBA on that historic spend.

On any commercial purchase you should:

Ask explicitly for the SBA Allowance Statement in the heads of terms.

Make it a condition in the contract that it is provided on completion.

Forum mistake: "We can just get our accountant to claim SBA later." If the allowance statement trail is broken, HMRC can simply say no, and that is 30+ years of 3% relief gone.

2. Plant and machinery: where the real money often is

Plant and machinery allowances live across multiple parts of CAA 2001 and are where most of the immediate tax relief sits for older commercial buildings.

Integral features (special rate pool)

Integral features (CAA 2001 s33A etc) include:

Electrical systems (lighting and power).

Cold-water systems.

Space and water heating systems, air-con and ventilation.

Lifts and escalators.

Fire safety systems in many cases.

Rates in 2025-26:

Special rate writing down allowance (WDA) 6% per year reducing balance.

However, you can usually claim 100% up front on most of this via:

Annual Investment Allowance (AIA) up to GBP 1m per year.

Or, if you are a company, full expensing / first-year allowances on qualifying plant and machinery from 1 April 2023 for main rate assets, with 50% for special rate in some cases.

Other plant and machinery (main pool)

Typical items in a small commercial unit:

Carpets and some floor coverings.

Blinds and curtains.

CCTV and security systems.

Fire alarms and emergency lighting.

Fitted commercial kitchens, counters and bar equipment.

Signage and external lighting that is not part of the structure.

These usually go into the main rate pool, with WDA at 18% reducing balance, but again most small landlords just use AIA or full expensing to get 100% in year one up to GBP 1m per accounting period.

Forum mistake: "You can only claim on loose items like furniture." Reality: the bulk of qualifying plant in commercial property is embedded in the building as integral features. That is why a proper capital allowances survey matters.

3. Capital allowances survey and purchase price allocation

Why you need a survey

For older commercial buildings, plant and machinery is often buried in the purchase price. A specialist capital allowances surveyor will:

Analyse building plans, specs and site inspections.

Identify all qualifying plant and integral features.

Allocate a portion of the purchase price to these items using accepted valuation methods.

Typical findings:

For older non-residential property, 15-30% of the purchase price is often attributable to qualifying plant and machinery.

On a GBP 300k unit, that is GBP 45k-90k of spend that can attract immediate or accelerated tax relief rather than SBA's slow 3% trickle.

Section 198 election and "just and reasonable" apportionment

On second-hand commercial purchases, CAA 2001 rules mean:

Seller and buyer must agree the part of the purchase price attributable to fixtures (plant and machinery fixed into the building) via a s198 election, or

If they do not agree, a "just and reasonable" apportionment is required and the default can be nil if the seller could have claimed and did not pool the expenditure.

Key points for your guide:

If the seller has claimed or could claim allowances on fixtures, they and you should agree a s198 election within 2 years of the sale, fixing the transfer value for fixtures.

If they have never pooled the expenditure, you may get little or nothing unless you negotiate it.

Forum mistake: "We will sort capital allowances after completion." If you do not negotiate and document fixtures and elections as part of the deal, you can permanently lose a big chunk of potential relief.

4. Annual Investment Allowance (AIA) and 2025-26 rates

AIA is the blunt instrument most small landlords should be using.

Limit: GBP 1 million per year, permanently legislated from 1 April 2023 onwards.

Scope: most plant and machinery (including integral features) used in your property business, excluding cars and a few restricted categories.

Effect: 100% deduction against profits in the year you incur the expenditure, up to the GBP 1m cap.

For 2025-26, you can assume:

Most sole trader and small company landlords will not hit the GBP 1m AIA cap unless they are doing multiple major projects.

If they do, the surplus goes into main or special rate pools at 18% or 6% WDA respectively.

You can also mention:

For companies, full expensing and 50% first-year allowances overlay this, but for practical landlord content, AIA is simpler and covers most scenarios.

5. Worked example: GBP 300k commercial unit, GBP 60k plant

You buy a small commercial unit in 2025/26:

Purchase price: GBP 300,000 (excluding any VAT issues).

A capital allowances survey identifies GBP 60,000 of plant and machinery in the building (integral features and other fixtures).

The remainder, GBP 240,000, is structural / fabric cost eligible for SBA (assuming SBA conditions and allowance statement are met).

Assumptions:

You are a higher-rate individual landlord at 40% income tax.

You claim AIA on the GBP 60,000 of plant in year 1.

You claim SBA at 3% per year on GBP 240,000.

Year 1:

AIA claim: GBP 60,000 deduction.

SBA claim: 3% of GBP 240,000 = GBP 7,200.

Total capital allowances year 1: GBP 67,200.

Tax impact:

At 40%, that reduces your tax bill by GBP 26,880 in year 1 (60,000 x 40% + 7,200 x 40%).

Later years:

SBA continues at GBP 7,200 per year for the remaining 32 1/3 years, giving total SBA of GBP 240,000 over the period.

This is why, in your PropertyKiln content, you can say honestly:

On a GBP 300k commercial purchase, a proper capital allowances survey can often unlock GBP 45k-90k of plant.

Combined with SBA, that can shave tens of thousands off your tax bill in the early years alone.

If you skipped the survey and let the solicitor tick "fixtures at GBP 1" on the contract by default, you would get only SBA (if the allowance statement exists) and miss that GBP 60k of immediate plant relief entirely.

6. What forums get wrong about capital allowances

Common bad takes to call out clearly in your guide:

"You cannot claim capital allowances on property."

Wrong: CAA 2001 expressly allows plant and machinery allowances for fixtures in commercial property, and SBA for the structure in non-residential use.

"The accountant will claim everything automatically."

Wrong: unless someone has done a proper breakdown, accountants often have only one figure called "building" in the completion accounts. Without a survey and clear purchase allocation, a lot of plant is invisible.

"Capital allowances are only for new builds."

Wrong: older buildings often have the most plant. The 15-30% of price you can often identify as qualifying fixtures is exactly in older stock.

"We can sort fixtures and SBA later, after completion."

Wrong: fixtures need s198 elections and seller cooperation; SBA needs allowance statements. If you do not bake these into the deal, you can lose relief forever.

For PropertyKiln, the practical position to take is:

Any time you buy a commercial building for GBP 200k+, make capital allowances part of the deal structure from day one.

At minimum get: SBA allowance statement, fixtures disclosure, and, where numbers justify it, a specialist survey.

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