Tangible Assets

Depreciation of fixed assets is not allowable as a deduction from any source of income. However, traders, and most non-traders, are instead allowed specified rates of annual deduction in respect of specified classes of assets, which are referred to as “capital allowances”.

Capital allowances for machinery, equipment, and industrial buildings can be disclaimed in whole or in part, thereby deferring allowances. Excess capital allowances are generally recaptured on disposal. The recapture is calculated on a 'pool' basis for most machinery and equipment, in which case there is no recapture unless the sale proceeds exceed the total written down value of the pooled assets. The rules concerning which pool an asset goes into can be complex. A large company will generally have several pools ranging from single asset pools to a single large pool for most of its plant and machinery. There is no recapture for sales of industrial buildings.

Capital allowances are available for fixed assets at the following rates:

Asset Type	Description	Rate
Plant and Machinery	Main Rate Pool	18% on a declining balance basis
Second-hand electric cars and cars with carbon dioxide emissions of 50g/km or less	Main Rate Pool	18% on a declining balance basis
Cars with carbon dioxide emissions exceeding 50g/km	Special Rate Pool	6% on a declining balance basis
Assets with a useful life of 25 years or more if the total value of long-life items in an accounting period is more than GBP 100,000 (if the total value is less than GBP 100,000, the asset is depreciated under the main rate pool)	Special Rate Pool	6% on a declining balance basis
Integral structures in a building (such as heating, thermal insulation, solar panels)	Special Rate Pool	6% on a declining balance basis
Assets given on lease	Special Rate Pool	10% on a declining balance basis
Structures and Buildings Allowance (SBA) for purchase, construction and renovation of non-residential structures and buildings where contracts are entered into on or after 29 October 2018.	Special Rate Pool	3% on a straight-line basis

A 100% annual investment allowance is available to all businesses on the first GBP 1 million for investments made in new plant and machinery, including second-hand assets and those acquired for leasing. Effective from 1 April 2021, a 100% first-year allowance is also available for expenditure incurred on new electric cars and cars with carbon dioxide emissions of 0g/km.

Certain temporary first-year allowances and super deductions are also available as follows:

A 100% enhanced capital allowance for companies investing in plant and machinery in designated tax sites for the period between 1 April 2021 and 30 September 2026;
A 100% first-year allowance for electric vehicle charge-points until 31 March 2025 (extended from 31 March 2023); and
An enhanced 10% Structures and Buildings Allowance (SBA) effective from 1 April 2021, provided the structure or building is brought into use on a designated site on or before 30 September 2026.

Further, the following allowances are also available (initially introduced for a temporary period from 1 April 2023 to 31 March 2026, and made permanent effective 22 February 2024):

A 100% first-year allowance on qualifying new (unused) plant and machinery investments that form part of the main 18% rate pool; and
A 50% first-year allowance on qualifying new (unused) plant and machinery investments that form part of the special rate pool.

Cars, assets for leasing, and second-hand assets are excluded from these allowances.

Intangible Assets

A special regime applies to intangible assets such as goodwill, patents, trademarks, and know-how purchased or brought into existence on or after 1 April 2002. Effective 8 July 2015, the acquisition cost of goodwill and customer-related intangibles was not allowed as a tax deduction. However, effective from 1 April 2019, targeted relief was reinstated by allowing a deduction at a rate of 6.5% per annum in respect of goodwill and customer-related intangibles when acquiring businesses with eligible intellectual property. The deduction amount is restricted to 6 times the cost of any patents or other intellectual property acquired in the same transaction.

Leased Assets

Where assets are leased, capital allowances are generally available to the lessor rather than the lessee. However, this is an area of complexity, and in some situations (generally relating to finance leases), the allowances are only available to the lessee. For leased cars with carbon dioxide emissions above 50g/km, 15% of the lease cost is disallowed.

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