Capital Allowances After Budget 2026: First-Year Allowance Rises to 50% from January 2027, Writing-Down Allowance Cut to 12%
The Autumn Budget on 28 October 2026 raises the main rate first-year allowance from 40% to 50% for spending from 1 January 2027, while the main rate writing-down allowance falls from 14% to 12% from April 2027.
By Entrepreneur Group · Published
The Autumn Budget on 28 October 2026 raises the main rate first-year allowance (FYA) for plant and machinery from 40% to 50% for spending incurred on or after 1 January 2027. At the same time the main rate writing-down allowance (WDA) falls from 14% to 12%, from 1 April 2027 for companies and 6 April 2027 for businesses paying Income Tax.
The result is a small boost for businesses buying new equipment that does not get full expensing or the Annual Investment Allowance, and slower relief on everything left in the main pool, including second-hand assets and cars.
What changes and when
Both changes are set out in measure 1.42 of the government's Overview of Tax Legislation and Rates. The Budget says the government will "increase the main rate first-year allowance to 50% for expenditure incurred on or after 1 January 2027", and will cut the main rate WDA to 12%.
This is the second change in a year. HMRC's November 2025 policy paper introduced the 40% FYA from 1 January 2026 and cut the main rate WDA from 18% to 14% from April 2026. That paper said the FYA was aimed at spending where other first-year allowances are not available, such as assets bought for leasing and assets bought by unincorporated businesses, and that it excluded cars, second-hand assets and overseas leasing. HMRC estimated about 650,000 businesses, including the self-employed, would be affected.
Kreston Reeves says the plant or machinery must be new and unused, fall within the main rate, and not be a car. The allowance is open to companies, sole traders and partnerships, and assets bought for leasing can qualify, although assets used for certain overseas leasing are excluded.
Who gains and who loses
Full expensing and the Annual Investment Allowance are not changed. Tax Policy Associates says "nothing changes" for new investment that gets full expensing, and Kreston Reeves notes the Annual Investment Allowance still gives 100% relief on up to £1 million of qualifying spending a year.
The changes matter most to three groups:
- Unincorporated businesses spending more than £1 million. Sole traders and partnerships cannot use full expensing, so main rate spending above the Annual Investment Allowance relies on the FYA or WDAs.
- Leasing businesses. Companies buying equipment to lease out cannot use full expensing, so the higher FYA is aimed at them.
- Anyone with a large main pool. The 12% WDA applies to existing pool balances, second-hand assets and cars, as well as the part of new spending not covered by the FYA.
Kreston Reeves gives a worked example: £100,000 of qualifying equipment gets a £40,000 first-year deduction under the current rules, rising to £50,000 for spending from 1 January 2027. The remaining balance then gets WDAs at the slower 12% rate.
Tax Policy Associates estimates that the total value of relief on new spending that gets the FYA rises from 84% to 85% of cost, while relief on second-hand assets, cars and existing pool balances falls from 77% to 74%. It quotes the Budget document as saying the government decided to "raise revenue by reducing the main rate of writing down allowances by two percentage points", and estimates the net effect at about £1 billion a year in the medium term.
What this means for growing businesses
This section is editorial guidance, not tax advice.
- Check the timing of big purchases. Spending on qualifying new equipment from 1 January 2027 gets 50% rather than 40% up front, so it is worth talking to your accountant about when to buy if you are close to that date.
- Know which pot you are in. If your company already uses full expensing or the Annual Investment Allowance for all its spending, these changes make little difference to new purchases.
- Expect lower relief on the pool. If you claim WDAs on older spending, cars or used equipment, your deduction for accounting periods after April 2027 will be smaller, which may increase your tax bill slightly.
- Update forecasts. Businesses with accounting periods that span the April 2027 change should ask their adviser how the WDA rate will be worked out for that period.
Frequently asked questions
What is the first-year allowance from January 2027?
The main rate first-year allowance rises from 40% to 50% for qualifying expenditure incurred on or after 1 January 2027. It applies to new and unused main rate plant and machinery, not cars, and is available to companies and unincorporated businesses.
When does the writing-down allowance fall to 12%?
The main rate writing-down allowance falls from 14% to 12% from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax. It applies to existing pool balances as well as new spending that receives WDAs.
Has full expensing changed in Budget 2026?
No. Full expensing and the £1 million Annual Investment Allowance continue, so new qualifying investment that already gets 100% relief is not affected.
Sources
- HM Treasury and HMRC: Budget 2026 Overview of Tax Legislation and Rates (measure 1.42) (reviewed 30 October 2026)
- HMRC: Capital allowances, new first-year allowance and reducing main rate writing-down allowances (26 November 2025) (reviewed 30 October 2026)
- Kreston Reeves: Capital allowance changes, Autumn Budget 2026 (28 October 2026) (reviewed 30 October 2026)
- Tax Policy Associates: Budget 2026, what it means (28 October 2026) (reviewed 30 October 2026)