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.