The most welcome change was the extension of first year allowances to unincorporated businesses which helps to level the position with incorporated businesses. The introduction of the advance tax certainty service means that capital allowances on large capital investment projects can be considered at project feasibility stage to establish the likely tax position with HMRC.

Less advantageous was the reduction in main rate writing down allowance from 18% to 14%, a measure which is expected to raise £1.5 billion of additional tax revenue each year and will therefore have a greater impact on all businesses than anticipated.

For corporation taxpayers and incorporated businesses

For corporation taxpayers and incorporated businesses, the Budget 2025 did not bring many significant changes. From 1 January 2026, a new 40% First-Year Allowance will be introduced for main rate plant and machinery, which will run alongside the existing 100% Permanent Full Expensing regime. Notably, this new allowance will also apply to leased assets, which were previously excluded, although second-hand assets, cars, and overseas-leased assets remain outside the scope. Additionally, a new advance tax certainty service launching in July 2026 will offer major capital projects early clarity on tax rules.

Various existing reliefs remained unchanged, including the 100% First Year Allowances for “green” assets, such as zero-emission vehicles and EV charge points, which will remain available until 31 March 2027. There are no changes to the main rate of corporation tax (still at 25%), nor the Annual Investment Allowance (which remains at £1 million), Land Remediation Relief - despite a consultation earlier in the year - or the existing 100% PMA Permanent Full Expensing and 50% IFA First Year Allowance.

For income taxpayers and unincorporated businesses

For income taxpayers and unincorporated businesses including individual partners of partnerships, private individuals, sole traders and private property investors, the Budget 2025 brings more significant changes. Property income tax rates are also set to rise by two percentage points across all bands, moving to 22%, 42%, and 47%. From 6 April 2026, the main rate writing down allowance will drop from 18% to 14%. However, there is good news for those investing in new plant and machinery: a new 40% First-Year Allowance will be available to unincorporated businesses for expenditure on new and unused assets from 1 January  2026 - a benefit previously reserved for companies under the Permanent Full Expensing regime. Additionally, the 100% First Year Allowances for “green” assets, such as zero-emission vehicles and EV charge points, have been extended until 5 April 2027 and the Annual Investment Allowance remains at £1 million.

Capital allowances continue to play a central role in incentivising investment despite challenging fiscal conditions. These changes, along with broader capital allowances considerations, will be examined in greater depth during the Savills Capital Allowances Webinar in spring 2026, with further details to be released in the new year.

Further information

Contact Neil Farquhar

Find out more about Capital Allowances here.