If you own or run a UK agency, the chances are you have spent money on a property at some point. Maybe you bought a freehold office in Manchester's Northern Quarter. Maybe you fitted out a leasehold space in Bristol Harbourside. Or perhaps you converted part of a residential property into a studio for your creative team.
Whatever the scenario, capital allowances on property could reduce your corporation tax bill. The rules are specific, and they are not always intuitive. But if you get them right, the relief can be substantial.
This guide explains what capital allowances are, which property costs qualify, and how to claim them. It is written for agency founders, not property specialists. We will keep the jargon to a minimum and give you real numbers where they help.
What Are Capital Allowances on Property?
Capital allowances let you deduct the cost of certain assets from your taxable profits. They are not the same as depreciation in your accounts. Depreciation is an accounting adjustment. Capital allowances are a tax relief.
When your agency buys a fixed asset, something that lasts more than a few years, you cannot normally deduct the full cost as an expense in one go. Instead, you spread the relief over time through capital allowances. The idea is that the asset wears out, and the tax system recognises that wear and tear.
For property, the rules are more detailed. You cannot claim allowances on the land itself, or on the basic structure of a building. But you can claim on the fixtures, fittings, and equipment inside it. As the ICAEW puts it, capital allowances on property are available for certain fixtures and structures, but not for the land itself [1].
What Qualifies as Plant and Machinery?
The most common category of capital allowances is plant and machinery. This covers equipment, machinery, and business vehicles, for example vans, lorries, or business cars [2]. For an agency office, plant and machinery typically includes:
- Air conditioning and heating systems
- Lighting installations
- Lifts and escalators
- Fire alarm and security systems
- Kitchen and bathroom fittings in communal areas
- Office furniture and shelving
- Computer servers and network infrastructure
- Specialist equipment like photography lighting rigs or recording studio gear
If you let out residential property, the rules are tighter. You can only claim capital allowances for items used in a residential building if the building has multiple residential units, like a block of flats, and the item is used in a communal part of the building [2]. For most agency founders, this matters if you live above your office or rent out a flat you own.
The Annual Investment Allowance (AIA)
The Annual Investment Allowance is the most generous relief available for plant and machinery. It gives you 100% tax relief on qualifying costs up to £1 million per year [2]. That means you deduct the full cost from your profits in the year you buy the asset.
For a growing agency, this is powerful. If you spend £80,000 on a new office fit-out, new lighting, air conditioning, furniture, and IT infrastructure, you could claim the full £80,000 against your taxable profits in that year. At the 19% small profits rate of corporation tax, that saves you £15,200. At the 25% main rate, it saves you £20,000.
The £1 million limit applies per group of companies, not per company. If you run multiple agencies under a group structure, you share one AIA allowance between all of them. Plan your purchases accordingly.
What the AIA Covers
The AIA covers most plant and machinery, but not everything. It excludes cars, assets you already owned before the business started, and assets given to you as gifts. It also excludes assets bought for leasing or hiring out.
For most agency offices, the AIA will cover the bulk of your fit-out costs. If you spend more than £1 million in a year, unlikely for most agencies, but possible if you are buying a large freehold, the excess goes into your main rate pool or special rate pool, where you claim writing-down allowances instead.
Full Expensing and First-Year Allowances
From 1 April 2023, the government introduced full expensing and a 50% first-year allowance for qualifying plant and machinery investments [2]. Full expensing works like the AIA but without a cap. It gives 100% relief on main rate pool items and 50% relief on special rate pool items.
Full expensing is available for companies only. Sole traders and partnerships cannot use it. If you are incorporated, full expensing is often more generous than the AIA because there is no £1 million limit. But you cannot claim both full expensing and the AIA on the same asset. Your accountant will help you decide which gives the better result.
Looking ahead, a 40% first-year allowance will be available for qualifying plant and machinery purchased after 1 January 2026 [2]. That is still a few years away, but worth noting if you are planning a major capital spend.
Structures and Buildings Allowance (SBA)
The Structures and Buildings Allowance is a separate relief for the cost of new commercial buildings and structures. It gives a 3% straight-line annual allowance on qualifying costs [1]. That means you claim 3% of the cost each year for 33.3 years.
The SBA applies to new buildings, not second-hand ones. If you build a new office from scratch, or buy a newly constructed building, you can claim the SBA on the construction cost. The relief is available to both companies and unincorporated businesses.
For an agency spending £500,000 on a new office build, the SBA gives £15,000 of tax relief each year. At 25% corporation tax, that is a saving of £3,750 per year for over three decades. Not as punchy as the AIA, but it adds up.
Writing-Down Allowances
If you cannot claim the AIA or full expensing on an asset, you put it into a pool and claim writing-down allowances each year. There are two pools:
- Main rate pool, general plant and machinery. Writing-down allowance: 18% per annum on the reducing balance [1].
- Special rate pool, integral features (like lifts, air conditioning, electrical systems) and long-life assets. Writing-down allowance: 6% per annum on the reducing balance [1].
For example, if you buy a server for £10,000 and put it in the main rate pool, you claim £1,800 in year one. The remaining £8,200 carries forward, and you claim 18% of that (£1,476) in year two, and so on. The relief tapers over time.
Claiming Capital Allowances on Property: The Process
You claim capital allowances through your company tax return (CT600) or self-assessment return (SA100). You do not need to submit a separate form. But you do need to keep detailed records of what you bought, when, and how much it cost.
For property purchases, the process is more complex. When you buy a commercial property, the purchase price includes both the land and the building. You need to apportion the price between land, building structure, and qualifying fixtures. This is where a capital allowances specialist, often a chartered surveyor who also understands tax, can add real value.
Claims for property must be made within two years of the end of the accounting period to which they relate [1]. If you miss that window, you lose the relief. Do not leave it to the last minute.
Common Mistakes Agency Founders Make
Mistake 1: Assuming everything in the office qualifies. General office furniture qualifies. Decorative items like paintings or sculptures do not. The line can be blurry. If in doubt, ask your accountant before you file.
Mistake 2: Ignoring fixtures in a leasehold property. If you fit out a leasehold office, the fixtures you install are your capital expenditure. You can claim allowances on them even though you do not own the building. Make sure your lease agreement does not prevent you from removing them at the end of the term.
Mistake 3: Forgetting about the SBA. Many agency founders know about the AIA but have never heard of the Structures and Buildings Allowance. If you have built a new office or bought a newly constructed one, you are leaving money on the table by not claiming it.
Mistake 4: Not keeping a fixed asset register. HMRC can ask for evidence of your capital expenditure. A simple spreadsheet with dates, descriptions, and costs is enough. But if you cannot produce it, your claim may be rejected.
When to Get Professional Help
Capital allowances on property are not a DIY area for most agency founders. The rules are detailed, and the stakes are high. A mistake could mean overpaying tax by thousands of pounds, or underpaying and facing an HMRC enquiry.
As ICAEW qualified accountants, we work with agency founders every day on exactly these questions. We can help you identify qualifying expenditure, prepare the claim, and file it on time. If you are buying a property or fitting out a new office, talk to us before you sign anything.
If you are already in a lease or own your office, it is not too late. We can review your past capital expenditure and see if there are unclaimed allowances from previous years. Just remember the two-year time limit.
For more on how we support agency founders with tax planning, visit our services page. If you run a specific type of agency, we have dedicated pages for marketing agencies, digital agencies, and creative agencies. And if you want to understand how property fits into your broader tax strategy, our tax and compliance blog covers the full picture.
Final Thoughts
Capital allowances on property are one of the most effective ways to reduce your agency's corporation tax bill. Whether you are buying a freehold, fitting out a leasehold, or building from scratch, there is almost always relief available. The key is knowing what qualifies, keeping good records, and claiming within the time limits.
If your agency has spent money on property in the last two years and you have not claimed capital allowances, speak to your accountant before your next tax return is due. The relief is there. You just need to ask for it.
Sources
- icaew.com: Capital allowances | Tax - ICAEW.com
- gov.uk: Claim capital allowances: Overview - GOV.UK