Second-Hand Assets and Capital Allowances: What Limited Companies Can Claim

A limited company buying second-hand plant and machinery cannot use full expensing, but it can claim 100% relief through the Annual Investment Allowance instead, up to the £1,000,000 annual limit. The distinction matters because full expensing is restricted to assets that are new and unused, while the annual investment allowance UK 2026 rules place no such condition on the equipment. For most owner-managed companies the practical effect is identical, since both give full relief in the year of purchase. The difference appears at the limit, on disposal, and where a company has already used its allowance elsewhere. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, reviews capital expenditure for companies buying used vans, refurbished machinery and equipment acquired with a trade. This article explains which assets qualify, how the two reliefs interact, what happens when the asset is sold, and how to sequence claims for maximum benefit.

Key Takeaways

• The Annual Investment Allowance gives 100% first-year relief on qualifying plant and machinery up to £1,000,000 per accounting period, and it applies to second-hand assets as well as new ones.
• Full expensing gives unlimited 100% relief to companies but only on plant and machinery that is new and unused, so second-hand purchases are excluded from it entirely.
• Second-hand special rate assets, such as integral features in a purchased building, qualify for the AIA at 100% but are excluded from the 50% first-year allowance, which also requires new assets.
• Claiming the AIA on second-hand plant saves a company £250 in corporation tax for every £1,000 spent where profits fall in the 25% main rate band, and £265 where marginal relief applies at 26.5%.
• Selling an asset on which full expensing was claimed triggers an immediate balancing charge equal to 100% of the disposal proceeds, whereas an annual investment allowance asset is normally handled through the capital allowances pool.
• Cars never qualify for the Annual Investment Allowance or full expensing and are relieved through writing down allowances at 14% or 6% depending on CO2 emissions.

Why can second-hand assets not use full expensing?

Full expensing is restricted by legislation to plant and machinery that is new and unused at the point of purchase, so any asset that has been previously owned or used falls outside it. The rule sits in the Capital Allowances Act as amended, and it applies equally to the 50% first-year allowance for special rate expenditure.

The policy intent was to encourage additions to the national capital stock rather than transfers of existing assets between businesses. Whatever the reasoning, the effect for a company director is straightforward. A brand new £40,000 machine can be relieved under full expensing without touching the AIA. A £40,000 used machine of identical specification cannot, and must be relieved under the Annual Investment Allowance instead.

This is why the AIA remains essential rather than redundant. Companies buying ex-demonstration vehicles, refurbished plant, auction lots or the assets of an acquired trade rely on it entirely. For the wider framework covering both reliefs, see our guide to the Annual Investment Allowance.

Which second-hand assets qualify for the Annual Investment Allowance?

Most second-hand plant and machinery qualifies for the AIA, including used commercial vehicles, machinery, tools, computer equipment, office furniture and integral features within a commercial property. Age and previous ownership are irrelevant to the claim.

Integral features deserve particular attention. When a company buys a commercial building, part of the price is attributable to electrical systems, cold water systems, heating, air conditioning and lifts. These are second-hand special rate assets and are excluded from the 50% first-year allowance, but the AIA £1 million limit covers them at 100%. Identifying and valuing them within the purchase price is one of the most commonly missed capital allowances limited company claims.

The main exclusions apply regardless of whether the asset is new or used. Cars are excluded from the AIA in all cases. So are assets bought in the accounting period in which the trade ceases, and assets given to the company as gifts or transferred from personal use, although the latter can be brought into the pool at market value for writing down allowances. Assets acquired from a connected person are also outside the AIA, which matters when a director sells personally owned equipment to their own company.

How much corporation tax does a second-hand asset claim actually save?

Relief is worth the expenditure multiplied by the company's marginal corporation tax rate, so a second-hand asset costing £60,000 saves £15,000 at the 25% main rate and £15,900 where marginal relief applies at an effective 26.5%.

Take a construction company with an accounting period ending 31 March 2027 and profits of £180,000 before capital allowances. It buys a used excavator for £60,000 and a new site office cabin for £25,000 in the same period.

The excavator is second-hand, so full expensing is unavailable and the £60,000 is claimed under the Annual Investment Allowance. The cabin is new and unused, so it can go through full expensing, leaving £940,000 of AIA still available. Total allowances of £85,000 reduce taxable profits to £95,000.

Profits between £50,000 and £250,000 fall into marginal relief territory, where the effective rate on the top slice is 26.5%. The £85,000 of allowances therefore saves £22,525 in corporation tax. Had the company claimed the AIA on both assets, the tax saving would have been identical, but £85,000 of the £1,000,000 allowance would have been consumed rather than £60,000.

Does it matter whether relief is claimed under AIA or full expensing?

Yes, and the difference shows up on disposal rather than on purchase. When an asset relieved under full expensing is sold, an immediate balancing charge equal to 100% of the disposal proceeds is added to taxable profits in that period. An asset relieved under the AIA is normally dealt with through the main pool, where the proceeds reduce the pool balance rather than creating an instant charge.

For a company that regularly replaces vehicles or machinery, that timing difference affects cash flow. A van bought new for £35,000 under full expensing and sold three years later for £14,000 produces a £14,000 balancing charge, worth £3,710 of corporation tax at 26.5% in a single period. The same van bought second-hand and relieved under the AIA would simply reduce the main pool by £14,000, spreading the effect over future years at 14% a year.

The sequencing rule that follows is simple. Where a company buys both new and second-hand assets in the same period and total spending exceeds £1,000,000, allocate the AIA to second-hand expenditure first, because new expenditure has full expensing available to it and second-hand expenditure has nothing else.

What should a company do before the year end?

Timing determines the period in which relief is given, so a company should confirm that qualifying assets are brought into use, or at least unconditionally contracted for, before the accounting date. Expenditure is generally treated as incurred when the obligation to pay becomes unconditional, not when cash leaves the bank.

Three checks are worth making annually. First, confirm whether each significant purchase was new or second-hand, because the invoice rarely says and the classification drives which relief applies. Second, review any commercial property acquisition for unclaimed integral features, since these claims can be made in later periods if the entitlement was never used. Third, check the AIA limit where the accounting period is shorter or longer than twelve months, because the £1,000,000 is pro-rated. A nine month period carries an AIA of £750,000.

Companies in a group or under common control share a single AIA between them, which is a frequent source of over-claiming where a director runs two or more companies.

Frequently Asked Questions

Can a limited company claim 100% capital allowances on second-hand equipment?

Yes. Second-hand plant and machinery qualifies for the Annual Investment Allowance, which gives 100% relief on up to £1,000,000 of qualifying expenditure per accounting period. Full expensing is not available because it requires assets to be new and unused, but the AIA produces the same immediate deduction against taxable profits for most owner-managed companies.

Does full expensing apply to used vans and machinery?

No. Full expensing applies only to plant and machinery that is new and unused when purchased, so used vans, second-hand machinery and ex-demonstration equipment are all excluded. Those assets should be claimed under the Annual Investment Allowance instead, which carries no condition about the age or previous ownership of the asset.

What is the Annual Investment Allowance limit for 2026/27?

The Annual Investment Allowance is £1,000,000 per accounting period and has been set permanently at that level. The limit is pro-rated for accounting periods shorter or longer than twelve months, so a nine month period gives an allowance of £750,000. Companies under common control share a single £1,000,000 allowance between them.

Can a director sell equipment to their own limited company and claim the AIA?

No. Assets acquired from a connected person, including a director selling personally owned equipment to their own company, are excluded from the Annual Investment Allowance. The company can still bring the asset into its main pool at market value and claim writing down allowances at 14% a year on a reducing balance basis.

Do second-hand integral features in a commercial building qualify for relief?

Yes. Electrical systems, heating, air conditioning, lifts and cold water systems within a purchased commercial building are second-hand special rate assets. They are excluded from the 50% first-year allowance, which requires new assets, but they qualify for the Annual Investment Allowance at 100% up to the £1,000,000 limit.

What happens for tax when a second-hand asset is later sold?

An asset relieved under the Annual Investment Allowance is normally dealt with through the main capital allowances pool on disposal, so the sale proceeds reduce the pool balance rather than creating an immediate tax charge. By contrast, an asset relieved under full expensing produces a balancing charge equal to 100% of the disposal proceeds in the period of sale.

How Blue Tick Can Help

Blue Tick Accountants reviews capital expenditure for limited companies to confirm which assets are new and which are second-hand, allocate the Annual Investment Allowance where it does the most good, and identify integral features in commercial property purchases that are routinely missed. Where a company is approaching the £1,000,000 limit or operates alongside connected companies, the sequencing of claims can be worth thousands in deferred corporation tax. Head to our website and book a meeting now.

Conclusion

Second-hand plant and machinery still attracts full 100% relief for a limited company, just through the Annual Investment Allowance rather than full expensing. The practical discipline is to classify every significant purchase as new or used at the point of invoice, reserve the £1,000,000 allowance for the second-hand spending that has no alternative relief, and check commercial property acquisitions for unclaimed integral features. Reviewing capital expenditure before the accounting date, rather than after it, is what turns the allowance into an actual tax saving.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK. Leon advises owner-managed companies on capital allowances, corporation tax planning and profit extraction. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.