UK Annual Investment Allowance (AIA) 2026/27: £1,000,000 Capital Tax Relief
UK Annual Investment Allowance 2026/27: £1,000,000 a year at 100%, what qualifies, full expensing and the 40% FYA, 14% and 6% pools, worked examples.
2026/27 AIA framework
AIA maximum
£1,000,000
Per 12-month chargeable period (CAA 2001 s.51A)
Deduction rate
100%
In the period the expenditure is incurred
Beyond the AIA
14% / 6% WDA
Main / special rate pool, reducing balance. Main rate 14% from April 2026 (40% FYA on new main-rate plant)
Worked AIA scenarios
From our AIA engine for 2026/27: a 12-month period, a single company with no associated companies, or a sole trader whose trading profit is their only income (England bands, Income Tax plus Class 4 NI). Tax saved is the tax on the profit less the tax on the profit after the year-one deduction.
| Scenario | Spend | Profit | AIA | FYA / full expensing | Year-1 WDA | Year-1 deduction | Tax saved, year 1 |
|---|---|---|---|---|---|---|---|
| Sole trader, modest equipment Laptop and workshop tools, all within the AIA. | £15,000 | £60,000 | £15,000 | - | - | £15,000 | £5,457 |
| Company, second-hand machinery Second-hand, so no full expensing: the AIA covers it. | £200,000 | £350,000 | £200,000 | - | - | £200,000 | £51,500 |
| Company, second-hand fit-out near the cap Still under the £1m AIA. | £900,000 | £1,500,000 | £900,000 | - | - | £900,000 | £225,000 |
| Company, new plant above the cap New main-rate plant: full expensing, no cap. | £1,500,000 | £2,000,000 | £0 | £1,500,000 (100%) | - | £1,500,000 | £375,000 |
| Sole trader, new plant above the cap AIA on £1m, then the 40% FYA on the rest; the balance is pooled next year. | £1,500,000 | £2,000,000 | £1,000,000 | £200,000 (40%) | - | £1,200,000 | £564,000 |
| Sole trader, second-hand plant above the cap AIA on £1m, then 14% WDA on the rest. | £1,500,000 | £2,000,000 | £1,000,000 | - | £70,000 | £1,070,000 | £502,900 |
What qualifies for AIA
| Asset type | AIA? | Notes |
|---|---|---|
| Computers, laptops, tablets | ✓ | Main rate plant and machinery. |
| Phones and equipment used partly privately | ✓ | Sole traders: the allowance is reduced for private use. |
| Office furniture and equipment | ✓ | Desks, chairs, shelving. |
| Plant and machinery for the trade | ✓ | Manufacturing equipment, kitchen equipment, salon chairs. |
| Vans and commercial vehicles | ✓ | Cars are excluded; vans are not. |
| Tractors and construction plant | ✓ | Excavators, forklift trucks. |
| Tools and workshop equipment | ✓ | Hand tools to large machinery. |
| Integral features (electrical, heating, air-conditioning, lifts) | ✓ | Special rate expenditure (6% WDA), but the AIA can still cover it in full. |
| Solar panels and thermal insulation | ✓ | Special rate expenditure; AIA available. |
| Cars (including electric) | ✗ | CAA 2001 s.38B general exclusion 2. New zero-emission cars have a separate 100% FYA. |
| Buildings and structures | ✗ | Structures and Buildings Allowance at 3% a year for some non-residential buildings. |
| Land | ✗ | Not plant or machinery. |
| Items you already owned or were given | ✗ | CAA 2001 s.38B general exclusion 5 (ss.13 and 14). Claim WDA instead. |
| Expenditure in the period the business stops | ✗ | CAA 2001 s.38B general exclusion 1. |
AIA vs Full Expensing vs the 40% FYA
| Feature | AIA | Full expensing | 40% FYA |
|---|---|---|---|
| Cap | £1,000,000 per period | No cap | No cap |
| Who can claim | Individuals, all-individual partnerships, companies | Companies only | Any business (from 1 January 2026) |
| Asset condition | New or second-hand | New and unused | New and unused, not cars |
| Main rate items | 100% | 100% | 40%, balance pooled next period |
| Special rate items | 100% | 50%, balance pooled next period | Not available |
Ordering: a company should use the AIA on special-rate items first (100% rather than 50%), then full expensing for new main-rate plant. A sole trader or partnership uses the AIA first, then the 40% FYA on new main-rate plant above it, then writing down allowances.
Related calculators and guides
- AIA calculator - the engine behind the table above.
- Capital allowances calculator - main and special rate pools.
- Corporation Tax calculator - the CT bill the AIA reduces.
- Self-employed expenses checklist - revenue vs capital.
- R&D tax credit calculator - a separate relief.
- UK Corporation Tax rates - marginal relief between £50,000 and £250,000.
- EV company car tax - 100% FYA on new zero-emission cars (separate from AIA).
- LTD company closure / MVL - no AIA in the period the trade stops.
Frequently asked questions
What is the Annual Investment Allowance for 2026/27?
Up to £1,000,000 of qualifying plant and machinery expenditure in a chargeable period is deducted in full from taxable profit in that period (CAA 2001 s.51A(3)-(4); the maximum is set by s.51A(5)). The £1 million level applies from 1 January 2019; it was £200,000 from 1 January 2016 to 31 December 2018. It is available to individuals, partnerships whose members are all individuals, and companies (s.38A(3)); it is not available to trustees or to partnerships with a company member. The £1 million is a maximum, not a guarantee: the allowance is limited to what you actually spend.
What qualifies for AIA?
Almost all plant and machinery, subject to the general exclusions in CAA 2001 s.38B: cars, expenditure in the period the qualifying activity ends, plant first owned for another purpose or received as a gift, ring fence trades, and expenditure connected with a change in someone else's trade made mainly to get an AIA. Buildings are not plant and get the Structures and Buildings Allowance instead. Sole traders who use an asset privately get the allowance on the business proportion only. HMRC's outline is at CA23081 and the restrictions at CA23087.
What is AIA vs Full Expensing?
Full expensing (CAA 2001 s.45S, inserted by Finance (No. 2) Act 2023 s.7 and made permanent by Finance Act 2024 s.1) gives companies a 100% first-year allowance on new and unused main-rate plant with no cap, and a 50% first-year allowance on new special-rate plant. The AIA works for any qualifying person and for second-hand plant, but is capped. Because the AIA gives 100% on special-rate items too, a company buying new special-rate plant gets more by using the AIA there first. From 1 January 2026 there is also a 40% first-year allowance on new main-rate plant for any business (s.45U), which matters most to sole traders and partnerships.
Do connected businesses share the £1m AIA?
Often, yes. A group of companies gets one AIA between them, and so do companies under common control that are "related" (they share premises or carry on similar activities). The same applies to unincorporated businesses controlled by the same person that are related in the same way (the restrictions in CAA 2001 ss.51B to 51N). Where the restriction applies, the businesses can allocate the single allowance between them as they choose (s.51K). Separately, expenditure connected with a change in another person's trade made mainly to obtain an AIA is excluded (s.38B general exclusion 4).
How does AIA work in short or long accounting periods?
If the chargeable period is more or less than a year, the £1 million maximum is increased or reduced proportionately (CAA 2001 s.51A(6)): a 6-month period has a maximum of £500,000. For a sole trader with a 15-month period of account the maximum is £1,250,000. A company is different: an accounting period cannot exceed 12 months (CTA 2009 s.10), so a 15-month period of account is split into a 12-month and a 3-month accounting period, each with its own proportionate allowance.
What about Cars - do they qualify for AIA?
No. Cars are excluded (CAA 2001 s.38B, general exclusion 2). New and unused zero-emission cars and electric vehicle charge-point equipment get a separate 100% first-year allowance for expenditure before April 2027 (CAA 2001 s.45D for cars and s.45EA for charge points: 31 March 2027 for Corporation Tax, 5 April 2027 for Income Tax). Other cars get writing down allowances: main rate pool at 14% if CO2 is no more than 50g/km, special rate pool at 6% above that. Hire costs of a car above 50g/km are restricted by 15% (CTA 2009 s.56 for companies).
What happens if my capex exceeds £1,000,000?
For a company, new main-rate plant above the cap can be fully expensed. For any business, new and unused main-rate plant above the cap gets the 40% first-year allowance, and the other 60% goes into the main pool from the next period (CAA 2001 s.58(5)). Second-hand plant above the cap goes into the pool and gets writing down allowance: 14% a year on the main pool (about 52.96% relieved after 5 years, 77.87% after 10) and 6% on the special rate pool (26.61% and 46.14%). On the AIA engine a sole trader spending £1,500,000 on new plant deducts £1,200,000 in year one; second-hand, £1,070,000.
When should I time my capex purchases for maximum AIA benefit?
The AIA is per chargeable period, so spreading spending over two periods can keep each within the cap. Relief is worth more in a year with a higher marginal rate: a company at the 25% main rate saves 25% of the deduction, one paying the 19% small profits rate saves 19%, and profits between £50,000 and £250,000 face an effective marginal rate of 26.5% under marginal relief. Expenditure is incurred when there is an unconditional obligation to pay (CAA 2001 s.5(1)), not when you pay or start using the asset, although a payment due more than 4 months later is treated as incurred on the due date (s.5(5)).
Can I claim AIA on equipment bought from abroad?
Yes. Where the plant was bought does not matter; it has to be AIA qualifying expenditure of your qualifying activity. Expenditure in a foreign currency is translated into sterling at the exchange rate on the date it is treated as incurred for capital allowances (HMRC Capital Allowances Manual CA11750). Expenditure incurred in a foreign currency before the trade begins is translated at the rate for the day it was actually incurred.
What records do I need for AIA claims?
Companies must keep records until the sixth anniversary of the end of the accounting period, or later if an enquiry is open (Finance Act 1998 Sch 18 para 21). Sole traders and partnerships in business must keep them until the fifth anniversary of the 31 January after the tax year (TMA 1970 s.12B). Keep the invoice for each item showing the supplier, description, cost and date, evidence of when the obligation to pay arose, and a running record of each pool: opening balance, additions, disposals and allowances claimed.
Can I claim AIA on items I bought BEFORE starting trade?
Expenditure incurred for a qualifying activity by someone about to carry it on is treated as incurred on the first day of the activity (CAA 2001 s.12), so it is relieved in the first chargeable period. This is different from plant you already owned for another purpose and later bring into the business: that is excluded from the AIA (s.38B general exclusion 5, s.13) and gets writing down allowances on its market value instead. Keep the receipts and dates from before you started.
How does AIA work with the Super-Deduction and Full Expensing succession?
The super-deduction (a 130% first-year allowance for companies) covered new main-rate plant from 1 April 2021 to 31 March 2023. Full expensing replaced it from 1 April 2023 and was made permanent by Finance Act 2024 s.1. Companies get 50% on new special-rate plant, with the balance entering the special rate pool from the next period. For new special-rate items the AIA (100%) is better, so use it there first. From 1 January 2026, sole traders and partnerships can add the 40% FYA on new main-rate plant above the AIA.