Capital Allowances After Budget 2025: Key Planning Considerations
Capital allowances play an important role in how businesses recover the cost of investing in plant, machinery, and other qualifying assets. They directly affect taxable profits, cash flow, and longer-term investment decisions. As a result, even relatively small changes to the rules can have a meaningful financial impact.
Following Budget 2025, the government confirmed a number of updates to the capital allowances regime. While several existing reliefs remain available, others are being adjusted, altering the pace at which tax relief is received. At Nordens, we are already working with businesses to review capital expenditure plans and existing allowance pools in light of these changes.
What are capital allowances?
Capital allowances provide tax relief on qualifying capital expenditure such as vans, machinery, computers, equipment, and certain fixtures within commercial property. They replace accounting depreciation, which is not deductible for tax purposes.
Who is affected?
The changes announced at Budget 2025 may impact:
- Unincorporated businesses such as sole traders and partnerships
- Companies with historic pools of unrelieved capital expenditure
- Leasing businesses
- Owners of commercial property
- Businesses subject to Income Tax or Corporation Tax
What is changing?
Introduction of a new 40% First Year Allowance
From 1 January 2026, a new permanent 40% First Year Allowance (FYA) will be introduced for main rate plant and machinery expenditure. This allowance is intended to support investment where existing reliefs are not available.
Reduction in writing down allowances
The rate of writing down allowance (WDA) for the main pool will reduce from 18% to 14% from 1 April 2026 for companies, and from 6 April 2026 for unincorporated businesses.
What is not changing?
- The £1 million Annual Investment Allowance continues at 100%
- Full expensing at 100% on main pool assets remains available to companies
- 50% first year allowances for special rate pool assets remain unchanged
- Writing down allowances on the special rate pool remain at 6%
- The 100% First Year Allowance for electric vehicle charging points and zero emission cars has been extended to 31 March 2027
What should businesses consider now?
These changes reinforce the importance of planning capital expenditure carefully. Decisions around when to invest, whether to lease or purchase assets, and how expenditure is structured could materially affect the timing of tax relief and overall cash flow.
How Nordens can support you
At Nordens, we support businesses by:
- Reviewing existing capital allowance pools and historic claims
- Advising on the timing and structure of future capital expenditure
- Identifying opportunities to maximise available reliefs
- Ensuring compliance while supporting cash flow planning
If you would like to understand how these changes apply to your business, our team would be happy to provide tailored advice.