Which Assets Qualify for the Annual Investment Allowance?

The annual investment allowance gives 100% tax relief in the year of purchase on up to £1,000,000 of qualifying plant and machinery, covering new and second-hand assets, integral features, fixtures, vans, computers, tools and commercial equipment, but excluding cars, buildings, land and assets bought purely for leasing to others. Knowing exactly which assets fall inside the definition matters more in 2026/27 than it did a year ago, because the main pool writing down allowance has dropped from 18% to 14% and the cost of misallocating a claim has risen accordingly. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, sees companies routinely waste allowance on assets that would have attracted 100% relief anyway. This article sets out the qualifying and excluded categories, explains how the annual investment allowance UK 2026 rules interact with full expensing and the new 40% first-year allowance, and works through the order in which a company should claim.

Key Takeaways

• The annual investment allowance is fixed at £1,000,000 per accounting period and gives a 100% deduction against taxable profits in the year the expenditure is incurred.
• Unlike full expensing, the AIA covers second-hand assets and special rate expenditure such as integral features, making it the only route to 100% relief on those items.
• Cars never qualify for the annual investment allowance, regardless of emissions, though new zero emission cars attract a separate 100% first-year allowance on expenditure incurred up to 31 March 2027 for companies and 5 April 2027 for unincorporated businesses.
• The main rate writing down allowance fell from 18% to 14% from 1 April 2026 for companies, so expenditure that misses a 100% allowance now unwinds far more slowly.
• A new permanent 40% first-year allowance applies to new main rate plant and machinery from 1 January 2026, including assets bought for leasing, but it excludes second-hand assets and cars.
• The £1,000,000 AIA limit is shared between companies under common control, so a group cannot claim £1,000,000 per company.

What does the annual investment allowance cover in 2026/27?

The annual investment allowance is a 100% capital allowance available on qualifying plant and machinery expenditure up to £1,000,000 in each 12 month accounting period, and it is available to companies, sole traders and partnerships alike. Expenditure above the limit falls into the normal capital allowances pools or, where the conditions are met, into full expensing or the 40% first-year allowance.

The limit is pro-rated for short accounting periods. A company preparing accounts for a nine month period has an annual investment allowance of £750,000, not £1,000,000. The AIA £1 million limit is also shared where companies are under common control and are related by business activity or shared premises, so a director running three trading companies from one site cannot assume three separate allowances.

Timing follows the date the expenditure is incurred, which is normally the date the obligation to pay becomes unconditional rather than the date cash leaves the bank. Assets bought on hire purchase qualify once the asset is brought into use, which gives a genuine planning lever near a year end.

Which assets qualify for the annual investment allowance?

Qualifying assets are those meeting the statutory definition of plant and machinery in the Capital Allowances Act 2001, and the category is far broader than most directors assume. It includes machinery and production equipment, commercial vehicles such as vans and lorries, computers, servers and printers, office furniture, tools, shop fittings, refrigeration and catering equipment, security and alarm systems, and demountable partitioning.

Crucially for capital allowances limited company claims, the AIA also extends to integral features of a building: electrical and lighting systems, cold water systems, space and water heating, air conditioning and ventilation, lifts and escalators, and external solar shading. These sit in the special rate pool, where the writing down allowance is only 6% a year, so claiming AIA on them is disproportionately valuable.

Second-hand assets qualify in full. That distinction matters because full expensing and the new 40% first-year allowance are both restricted to new and unused assets, leaving the AIA as the only route to immediate 100% relief on a used machine, a used van or the integral features acquired inside a second-hand commercial building.

Which assets do not qualify for the AIA?

Cars are excluded from the annual investment allowance in every case, whatever their emissions and whatever the business use. A car bought by a company instead enters the main pool at 14% or the special rate pool at 6% depending on CO2 emissions, with the exception of new zero emission cars, which attract a 100% first-year allowance until 31 March 2027 for corporation tax purposes.

Also outside the AIA are land and buildings themselves, structures such as walls and bridges, and most fixed structural features. Qualifying commercial construction may instead attract the structures and buildings allowance at 3% a year on a straight line basis. Assets bought in the accounting period in which a trade ceases are excluded, as are gifts and assets transferred in from personal use rather than purchased.

Assets acquired solely for leasing to others sit outside the AIA in most cases. The 40% first-year allowance introduced from 1 January 2026 was designed to fill precisely this gap for leasing and hire businesses, provided the asset is new.

How do AIA, full expensing and the 40% allowance fit together?

Full expensing should normally be claimed first on new main rate plant and machinery, with the AIA reserved for the assets that nothing else can relieve at 100%. Full expensing gives companies an uncapped 100% deduction on new and unused main rate plant and machinery, so using scarce AIA on those items wastes it. A 50% first-year allowance is available to companies on new special rate expenditure, but the AIA delivers 100% on the same spend and is therefore usually preferred.

For a full overview of the regime, see our guide to the Annual Investment Allowance.

Consider a trading company with a year ending 31 March 2027 that spends £1,150,000: £700,000 on new production machinery, £300,000 on integral features within a second-hand warehouse it has acquired, and £150,000 on second-hand delivery vans.

Claimed in the right order, full expensing relieves the £700,000 of new machinery without touching the AIA, and £450,000 of AIA then covers the integral features and the vans in full. The whole £1,150,000 is deducted in year one, saving £287,500 of corporation tax at 25%.

Claimed in the wrong order, the AIA is applied to the machinery first and is exhausted at £1,000,000. The £150,000 of second-hand vans then enter the main pool and attract only 14%, giving £21,000 of relief. The first-year deduction falls to £1,021,000, deferring relief on £129,000 of expenditure and £32,250 of tax.

Frequently Asked Questions

Can I claim the annual investment allowance on a second-hand machine?

Yes. The annual investment allowance applies to both new and second-hand plant and machinery, giving 100% relief in the year of purchase up to the £1,000,000 limit. This is a key difference from full expensing and the 40% first-year allowance, both of which are restricted to new and unused assets. Second-hand equipment is often the strongest candidate for an AIA claim.

Does a company van qualify for the annual investment allowance?

Yes. Vans, lorries and other commercial vehicles are treated as plant and machinery and qualify for the annual investment allowance at 100%, whether new or second-hand. Cars do not qualify at all. HMRC distinguishes the two by construction and primary suitability for carrying goods rather than passengers, so double cab pick-ups and car derived vans need checking individually.

Is the £1 million annual investment allowance available to every company in a group?

No. The £1,000,000 annual investment allowance is shared between companies under common control where they are related by business activity or shared premises, and between all companies in a group. A group of four companies has a single £1,000,000 allowance to allocate between them, not £4,000,000, though the group can choose how to divide it.

What happens to capital expenditure above the AIA limit?

Expenditure above the £1,000,000 annual investment allowance may still attract 100% relief through full expensing if it is new main rate plant and machinery bought by a company, or 40% through the first-year allowance introduced on 1 January 2026. Anything that qualifies for neither enters the main pool at 14% a year or the special rate pool at 6% a year.

Can I claim AIA on a commercial property purchase?

Not on the building itself, but often on part of the price. The land and structure are excluded, while integral features within the property such as electrical systems, heating, air conditioning and lifts qualify as special rate plant and machinery and are eligible for the annual investment allowance. A capital allowances survey is normally needed to apportion the purchase price correctly.

How Blue Tick Can Help

Blue Tick Accountants reviews capital expenditure before a year end rather than after it, so the annual investment allowance, full expensing and the 40% first-year allowance are allocated in the order that produces the largest deduction. That review frequently identifies integral features inside a property purchase that had been treated as non-qualifying, and corrects the claim sequence on mixed new and second-hand spend. Head to our website and book a meeting now.

Conclusion

The annual investment allowance is worth £1,000,000 of immediate relief, but its real value in 2026/27 lies in the assets that nothing else covers: second-hand equipment and the integral features of a building. With the main pool writing down allowance now at 14% and the special rate pool at 6%, expenditure that misses a 100% allowance takes many years to relieve. Review planned capital spend before the accounting period closes, and allocate full expensing before the AIA.

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.

Related reading: AIA vs Writing Down Allowance: How to Choose the Most Tax-Efficient Route.

Related reading: Capital Allowances Year-End Planning: Timing Purchases to Maximise Relief.