Capital Allowances & Property: What the Autumn Budget 2025 Means in Practice

December 2, 2025

By Mark Anthistle, Capital Allowances Manager

The Autumn Budget 2025 introduced a number of changes affecting how and when capital allowances can be claimed, particularly for unincorporated businesses, landlords and property owners. While these changes do not alter the total amount of relief available over time, they do have important implications for the timing and value of relief and how capital expenditure should be treated going forward.

Below, we outline the key changes and what they mean in practice.

What were the changes?

Changes to writing-down allowances

The Budget confirmed that the Main Rate Pool Writing Down Allowance (WDA) will reduce from 18% to 14% from April 2026.

This change affects expenditure that falls into capital allowance pools rather than qualifying for first-year relief and results in allowances being claimed more slowly over time.

It is believed that, for accounting periods straddling 31st March 2026 a company would use a hybrid rate that year for their Main Rate Pool WDA. The hybrid rate is calculated based on the proportion of the accounting period (in days) that falls before the change date and the proportion that falls after it.

Illustration
A company with a 31st December 2026 year end would apply the following WDA to their Main Rate Pool:
90/365 @ 18% WDA = 4.44%
275/365 @ 14% WDA = 10.55%
Total = 14.99% WDA

A new 40% First-Year Allowance from January 2026

From 1 January 2026, a new 40% First-Year Allowance (FYA) will be available for qualifying new Main Rate plant and machinery expenditure.

This allowance will apply to:

  • Most new qualifying assets

  • Expenditure by unincorporated businesses

  • Assets acquired for leasing within the UK

Certain assets are specifically excluded, including:

  • Cars

  • Second-hand assets

  • Assets for leasing overseas

The measure appears, on the face of it, to be the Income Tax equivalent of Full Expensing, which offers an unlimited 100% relief for companies on new Main Rate expenditure, and to be structurally similar to the existing 50% Special Rate Allowance. Please note, we await further guidance on whether this understanding is accurate.

It is also thought, based on the treatment of similar allowances, the Annual Investment Allowance (AIA) will not be available on the remaining balance of expenditure after the 40% FYA has been claimed. Therefore, suitable tax planning should be applied to ensure the most efficient use of the incentives on offer to maximise the rate of benefit.

Property income and wider tax measures

Further measures relevant to property owners and landlords were also confirmed:

  • Income Tax thresholds remain frozen, bringing more individuals into higher marginal tax bands over time

  • From April 2027, property income (outside Scotland) will be subject to separate Income Tax rates, with a 2% increase applied to each band

  • Local authorities will have discretion to introduce a tourist or visitor levy, meaning any impact will vary depending on location

 

What does this mean in practice?

Timing of relief matters more than ever

These changes do not reduce the total capital allowances available over the life of an asset. Instead, they affect when that relief is obtained.

The reduction in writing-down allowances means that businesses relying on pooled expenditure will obtain relief more slowly. As a result, it becomes increasingly important to:

  • Fully identify qualifying expenditure in the year it is incurred

  • Ensure available first-year allowances are correctly claimed where eligible, rather than expenditure defaulting into pools with slower rates of relief

Higher tax rates increase the value of allowances

For individuals and landlords, frozen tax thresholds and higher future tax rates on property income mean that the cash value of capital allowances increases, as relief is given at a higher marginal rate.

This is particularly relevant for:

  • Owners of short-term lets or Airbnb-style properties (whose ability to retrospectively claim ceases in March 2027)

  • Individuals who may now fall into the 40% Income Tax band as a result of frozen thresholds

  • Property owners who will be subject to the additional 2% property income tax rate from 2027

Implications for tourism and hospitality

In the tourism and hospitality sector, the potential introduction of a local tourist levy adds further cost pressure in regions where it is adopted. While this will not affect all locations, it reinforces the importance of understanding the full tax and cost profile of property-based businesses, particularly where margins are already tight.

Key takeaway

The Autumn Budget reinforces that capital allowances remain a cash-flow and timing consideration, rather than a source of new relief. With writing-down rates reducing, new first-year allowances being introduced, and higher Income Tax rates increasing the value of relief, careful treatment of qualifying expenditure is becoming more important as the changes come into effect.

 

If you’d like to understand how these changes may affect your business or property portfolio, taking advice early can help you stay informed and prepared > contact us today 

Mark Anthistle

Capital Allowances Manager

Book a Meeting with Mark here

 

 

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