New tax relief on plant and machinery leasing now available
As announced in last year’s Autumn Budget, a new 40% First-Year Allowance (FYA) for main-rate plant and machinery expenditure is now in effect. From 1 January, businesses investing in qualifying assets can benefit from this enhanced relief, designed to encourage capital investment and support growth.
What is the 40% First-Year Allowance?
The First-Year Allowance allows businesses to claim a higher percentage of the cost of qualifying plant and machinery against taxable profits in the first year of purchase or lease.
Under the new rules:
- 40% FYA applies to main-rate plant and machinery
- Available for new and unused assets
- Applies to both purchase and leasing arrangements
This measure complements existing capital allowances, including the Annual Investment Allowance (AIA) and full expensing options, offering businesses greater flexibility in managing tax liabilities.
Crucially, unincorporated businesses, such as sole traders and partnerships, who do not benefit from the full expensing regime available to companies, are able to utilise the new 40% FYA.
For these businesses, and all that are eligible, it provides a valuable opportunity to accelerate tax relief on qualifying expenditure beyond what is available under standard writing-down allowances. This can significantly reduce taxable profits in the year of investment, improving cash flow and making it easier to fund growth.
What qualifies?
The relief applies to:
- Plant and machinery used for business purposes
- Assets that qualify for the main rate of capital allowances
- New and unused equipment (second-hand assets do not qualify)
Certain exclusions apply, such as cars and overseas leasing.
Planning considerations
- Timing matters: Ensure expenditure occurs within the qualifying period starting 1 January 2026
- Interaction with other allowances: Consider how this new 40% FYA works alongside AIA and full expensing to maximise tax efficiency
- Cash flow benefits: Accelerated relief can reduce tax bills in the first year, freeing up funds for reinvestment
- Future WDA changes: The remaining 60% of the asset’s cost will continue to receive relief through annual writing-down allowances (WDAs). However, note that the WDA rate will drop from 18% to 14% from April 2026 (1 April for corporation tax, 6 April for income tax).
We’re here to help
Our tax specialists can help you:
- Assess whether your planned investment qualifies
- Optimise your capital allowances claims
- Plan strategically to maximise tax savings
Contact our Capital Allowances specialists today to discuss how the recent changes to the capital allowances regime could benefit your business.
