Capital Allowances changes at Autumn Budget 2025

Autumn Budget 2025

The Autumn Budget 2025 was mooted in the months leading up to the day with many expected changes, mainly concerning personal taxation; raising some £26bn, albeit with measures spread over the next five years.  However, it saw limited tax technical detail in the Budget speech itself from the Chancellor, that was better understood through the details released after the speech.  These changes expected to be ratified through the Finance Bill 2025-2026.

Changes to WDAs

Usually capital allowances are claimed over multiple tax periods by reference to a per annum rate, allowing the taxpayer to ‘write off’ a certain percentage of their claim each year, known as the Writing Down Allowance (WDA).

The main rate of plant or machinery WDAs is currently 18% per annum on a reducing balance basis.  This rate applies to main pool expenditure, qualifying expenditure other than that specifically categorised as special rate (generally assets that qualify as Integral Features for property expenditure), and has been set at 18% since 2012.

This new measure reduces the rate of WDAs on the main pool of plant and machinery from 18% to 14% per annum, effectively slowing the rate at which tax relief is given against the previously qualifying claim(s).  Importantly, no relief is lost.  The change does not affect the WDAs on special rate pool expenditure which is currently 6%.

The new 14% rate of WDAs will be effective from:

• 01 April 2026 (Corporation Tax)
• 06 April 2026 (Income Tax)

There will be a hybrid rate that will have effect for businesses whose chargeable period spans 01 April (Corporation Tax) or 06 April (Income Tax).  The hybrid rate will be based on the proportion of the chargeable period falling before and after the change date.

These changes to WDAs are likely to only affect the largest Income Tax paying investors, mixed individual and corporate LLPs, or those with historic Capital Allowances pools.  As currently the 100% Annual Investment Allowance (AIA) allows investors to claim up to £1,000,000 in the year of expenditure, and the 100% Full Expensing first year allowance allows Corporation Tax payers to claim an unlimited amount of main pool expenditure in the year of expenditure.

Introduction of New FYA

Since the introduction of the Capital Allowances Act 2001, a number of different categories of assets have qualified for First Year Allowances (FYAs).  These FYAs allow the taxpayer to claim a boosted level of relief in the initial tax period during which the expenditure was incurred, rather than the default WDAs.

This measure introduces a 40% FYA for main pool expenditure. with reduced restrictions compared to other FYAs.  Current FYAs come with increased restrictions compared to claiming the 100% AIA or WDAs, which can affect the availability to Income Tax payers or on assets used for leasing.  The FYA will be beneficial primarily to these tax payers where the existing FYAs were restricted.

The new 40% FYA will be available for expenditure incurred from 01 January 2026.

This FYA will be for new assets only as second hand assets will be specifically excluded from the relief.

The current commentary refers to 'reduced restrictions', it will be interesting to see whether this includes the disposal restrictions that make claiming AIAs a fiscally better choice than Full Expensing, if available.

Update EV Charging FYA

Expenditure on electric vehicle charging equipment has qualified as FYAs since their introduction under s.38 Finance Act (No2) 2017 with effect from 23 November 2016.  These allowances were originally due to expire in April 2019 and 2023, but were extended twice and currently continue to attract 100% FYAs until 31 March/05 April 2026, for Corporation Tax and Income Tax respectively.

This measure will extend the availability of the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints by one year, to:

• 31 March 2027 (Corporation Tax)
• 05 April 2027 (Income Tax)

Next Steps

If you would like to discuss any of the Budget changes or any other capital allowances issues, then please do contact the team on 0345 230 6450 or hello@e3consulting.co.uk with any queries or for assistance. We look forward to speaking with you soon.