Our Capital Allowances team explains the changes announced in the 2025 Autumn Budget and explore how these changes could affect businesses through a case study.
At a glance
-
The 2025 Autumn Budget introduced a new capital allowances opportunity for leasing/hire businesses
-
It also reduced the relief available for claimants with main pool assets not covered by Full Expensing or the Annual Investment Allowance
What are Capital Allowances and what is the main pool?
Capital Allowances are a form of tax relief, giving deductions from taxable profits depending on the type of assets acquired, which then reduces your tax bill.
Most plant & machinery acquired for business use is relieved through the capital allowances main pool.
The exact reliefs available for such expenditure depend on the specific circumstances of the claiming entity, but the main routes prior to the Autumn Budget 2025 were:
- Claiming 18% relief a year through writing down allowances, on a reducing balance basis.
- Claiming 100% in the year of expenditure, through the Annual Investment Allowance (a form of first year allowance). This relief is shared by connected entities and subject to a cap of £1m per year, along with some other restrictions.
- Claiming 100% in the year of expenditure, through Full Expensing (a form of first year allowance). This relief is only available to corporate entities, and specifically not available on assets for leasing/hire (unless background plant/machinery to a leased building), second hand assets, or cars. There is no upper limit on the amount that can be claimed each year.
Changes in the Autumn Budget 2025
Two major changes to the capital allowances regime were announced during the Budget on 26th November 2025.
The first change, which is positive, is the introduction of a new form of first year allowance that will come into effect on 1st January 2026. This will relieve 40% of the expenditure in year one (with the remaining 60% able to be claimed through writing down allowances in year two onwards). The restrictions on this relief are similar to those set out for Full Expensing above, with two key differences:
- It will be able to be claimed on assets provided for leasing/hire.
- It will be available to unincorporated businesses.
Whilst this new relief will not be relevant for every business, it could have a major impact in specific circumstances (albeit not as much as the extension of Full Expensing to leased assets, that was lobbied for, would have had).
The second change was a reduction of the rate for main pool writing down allowances from 18% to 14%. This will come into effect from 1st April 2026 for entities paying corporation tax and 6th April 2026 for those paying income tax. Whilst this is a blow to tax payers with large brought forward pool balances, or with expenditure on assets that do not qualify for the faster reliefs set out above, the majority of new investment is still likely to qualify for one of the accelerated first year allowances set out above.
Note that all of these accelerated allowances must be claimed in the year of expenditure, so it is important to get in touch with a capital allowances specialist early to ensure you are getting all the relief you are entitled to, before any deadlines are missed.
Case Study: Plant Ltd, a leasing business
Plant Ltd (a fictional company created for this scenario) has a financial ending on 31st March. At the start of their year ended 31st March 2027 they have a brought forward main pool balance of £10 million. During the year, they incur a further £3 million of expenditure on new and unused plant and machinery that is then leased to other companies. No other expenditure has been incurred.
Plant Ltd is part of a group with other companies that are investing in plant & machinery, and so the full £1 million of Annual Investment Allowance is already being used elsewhere in the group.
What impact does the Autumn Budget 2025 have on the relief available?
Before the budget
Prior to the Autumn Budget 2025, Plant Ltd would have been unable to claim first year allowances on the £ 3million of new additions in this period. This is because the full Annual Investment Allowance limit had already been used elsewhere in the group, and the assets do not qualify for Full Expensing as they are acquired with the intention to lease/hire them out to other entities.
As such, Plant Ltd would be able to claim writing down allowances on the additions and brought forward balance, at the previous rate of 18%:
(£10m + £3m) x 18% = £2.34m
Assuming a tax rate of 25%, the above deductions would lead to Plant Ltd’s tax bill for the year being £585k lower than it would have been if no capital allowances were claimed.
After the budget
With the changes from the Autumn Budget 2025, Plant Ltd is able to claim the new 40% first year allowance in respect of the £ 3million additions, as assets for leasing are not excluded from this relief. Writing down allowances will still be available on the brought forward pool balance, but at the new rate of 14% instead of 18%:
£10m x 14% = £1.4m
+ £3m x 40% = £1.2m
= £2.6m
Assuming a tax rate of 25%, the above deductions would lead to Plant Ltd’s tax bill for the year being reduced by £650k.
As such, Plant Ltd is better off by £65k as a result of the changes to the capital allowances regime.
Leasing business like Plant Ltd may therefore look to delay investment on relevant assets, where possible, until 1st January 2026 when the new first year allowance commences.
How can we help you?
If you have a leasing business or unincorporated business that acquires assets for use in the business, get in touch to explore how our specialist Capital Allowances Team can help you claim the tax relief you are entitled to.
