Qualifying activities for capital allowances purposes

Plant and machinery allowances are only available on expenditure incurred wholly or partly for the purposes of a qualifying activity carried on by the person incurring it.

• Qualifying activities are:
  • A trade, profession or vocation.
  • A property business (UK or overseas).
  • An employment or office.
  • Special leasing of plant and machinery.
  • Managing the investments of a company with investment business.
  • A concern in mines, quarries or sundry other undertakings listed in ITTOIA 2005 s.12(4) (CTA 2009 s.39(4) for companies).
• An activity is only a qualifying activity to the extent that its profits are, or would be, chargeable to UK tax.
• Allowances are calculated separately for each qualifying activity, so a person carrying on more than one activity needs separate computations and pools for each.
• Furnished Holiday Lettings (FHLs) ceased to be a separate qualifying activity from 1 April 2025 (Corporation Tax) and 6 April 2025 (Income Tax).
• Expenditure on plant or machinery for use in a dwelling-house does not qualify where the qualifying activity is a property business or special leasing. The restriction does not apply to other qualifying activities, such as a trade.
• Where the qualifying activity is an employment or office, no capital allowances may be claimed on expenditure on motor vehicles and cycles. Mileage allowance relief may be available instead.
• Capital allowances can be claimed for assets that are used for qualifying activities and for private purposes, subject to a restriction for the private use element, which is worked out on a just and reasonable basis.
  • The asset goes into a single asset pool.
  • No restriction applies where an employer provides an asset for a director's or employee's private use as part of their remuneration; the individual is taxed on the benefit instead.
• For Income Tax, allowances for special leasing can generally only be set against special leasing income. Different rules apply for Corporation Tax.
• For a company with investment business, allowances are deducted from its income, and any excess is treated as management expenses.
• Most unincorporated businesses use the cash basis by default. Under the cash basis, capital expenditure is generally deducted directly, and capital allowances remain relevant mainly for cars.
• A partnership can claim allowances on a partner's asset used in the partnership business free of charge.
• Some particular capital allowances have their own conditions. The Structures and Buildings Allowance excludes employments and special leasing, and Research and Development allowances are only available to traders.

Qualifying activities

To qualify for plant and machinery allowances, a person must incur capital expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity they carry on.

Qualifying activities are:

• A trade, profession or vocation.
• A property business (UK or overseas).
• An employment or office.
• Special leasing of plant and machinery.
• Managing the investments of a company with investment business.
• A concern in mines, quarries or sundry other undertakings listed in ITTOIA 2005 s.12(4) (CTA 2009 s.39(4) for companies).

An activity is a qualifying activity only to the extent that its profits or gains are, or (if there were any) would be, chargeable to tax. For example, activities whose profits are exempt from tax, such as the exempt activities of a charity, are not qualifying activities to that extent.

Separate calculations for each activity

Allowances must be calculated separately for each qualifying activity, with separate pools for each.

• For example, a shopkeeper who also lets the flat above the shop carries on two qualifying activities, a trade and a UK property business, and must calculate allowances for each separately.

Where an asset begins to be used for purposes other than those of the qualifying activity, for example because it is moved from a trade into a property business, this is a disposal event for the first activity. A disposal value is brought into account in that activity's pool, and the asset is then brought into the computation for the other activity.

Furnished Holiday Lettings (FHLs)

The FHL regime was abolished by Finance Act 2025. A UK or EEA FHL business is no longer a separate qualifying activity for:

• Accounting periods beginning on or after 1 April 2025, for Corporation Tax.
• Periods of account beginning on or after 6 April 2025, for Income Tax.

From those dates, a former FHL business forms part of the person's UK or overseas property business and is subject to the restriction for plant and machinery for use in a dwelling-house (see below).

Transitional rules apply where a person carried on an FHL business in the chargeable period ending 31 March 2025 (Corporation Tax) or 5 April 2025 (Income Tax), and carries on the corresponding property business in the next period. In that case:

• The end of the FHL business, and the start of use in the property business, are not treated as disposals.
• Unrelieved qualifying expenditure in the FHL pools is transferred to the corresponding pools of the property business, so writing down allowances continue.
• Elections made for the FHL business, such as short-life asset elections, continue to have effect.
• The dwelling-house restriction is ignored in applying these transitional rules.

New expenditure incurred after the change is subject to the normal property business rules, so replacement of domestic items relief will generally be the only relief for furnishings in a let dwelling. See Furnished Holiday Letting (FHL): Abolition of the regime briefing

Expenditure for use in a dwelling house

Whether expenditure on plant or machinery for use in a dwelling-house qualifies depends on the qualifying activity, not on the type of dwelling-house.

Expenditure on plant or machinery for use in a dwelling-house is not qualifying expenditure where the qualifying activity is:

• An ordinary UK property business.
• An ordinary overseas property business.
• Special leasing.

The restriction does not apply to other qualifying activities. A trade that provides accommodation, such as a hotel or guest house, is not restricted, although whether a letting activity amounts to a trade is a question of fact and most lettings are property businesses.

'Dwelling-house' is not defined and takes its ordinary meaning: a building, or part of a building, that provides the facilities needed for day-to-day private domestic existence.

• HMRC's view is that a house in multiple occupation is a single dwelling-house, including shared areas such as hallways, stairs and landings, so no allowances are available for plant in those areas.
  • In Tevfik (below), however, the First Tier Tribunal distinguished communal areas providing shared domestic facilities, such as kitchens and lounges, which are part of the dwelling-house, from common parts such as hallways and corridors, which are not.
  • HMRC's guidance has not changed following Tevfik, and First Tier Tribunal decisions are not binding, so claims for plant in the common parts of an HMO are likely to be challenged.
• A block of flats is not itself a dwelling-house, although each flat is. Plant serving the common parts of a block, such as a lift, can therefore qualify.
• Where an asset is provided partly for use in a dwelling-house and partly for other purposes, the expenditure is apportioned.
• The test is whether plant or machinery is provided for use in a dwelling-house, not where it is physically located. For example, ground-mounted solar panels in the garden of a let house that power the house do not qualify. Equipment the landlord uses to run the business generally, such as tools, ladders and office equipment, can qualify; furniture for the let property cannot.

A hospital, a prison, a nursing home, a residential care home, a hostel or a hotel (run as a trade and offering services, whether by the owner-occupier or by a tenant) is not a dwelling-house. Serviced apartments, however, are dwelling-houses, whether let on a short-term or long-term basis.

Landlords of residential property may instead be able to claim Replacement of Domestic Items Relief when they replace furniture, furnishings, appliances and kitchenware. There is no relief for the initial provision of such items.

In Hora Tevfik v HMRC [2019] TC07383, the First Tier Tribunal denied claims for capital allowances on the communal areas of HMO properties. The claims made were described as relating to communal, common parts, installations and shared areas but with no split between the different elements. Although invited to do so by HMRC, Mr Tevfik did not revise his claims so as to relate to common parts of the buildings only. The FTT accepted that plant in common parts could qualify, but the claim failed because it was not split between common parts and communal areas.

Example

Bob is a landlord. He owns a block of residential flats and a nursing home. He buys:

• New cookers for the flats.
• A new communal fire alarm system serving the common parts of the block of flats.
• New beds for the nursing home.

His expenditure on the cookers is not qualifying expenditure and so does not qualify for plant and machinery allowances because it is expenditure on assets for use in dwelling houses. If the cookers replace existing ones, he may instead be able to claim Replacement of Domestic Items Relief. The prohibition does not apply to the fire alarm system, because it serves the common parts of the block, or to the beds for the nursing home, because a nursing home is not a dwelling-house. If the alarm system also served the individual flats, the cost would need to be apportioned.

Officeholders and employees

Where the qualifying activity is an employment or office, no capital allowances may be claimed on expenditure on motor vehicles and cycles.

• This covers any mechanically propelled road vehicle, as well as cycles.
• Mileage allowance relief may be available for business travel in the employee's own vehicle instead.

The plant or machinery must be necessarily provided for use in performing the duties of the employment or office.

• This is a strict test. Allowances are not available for assets provided for the employee's own convenience or for personal reasons, even if the employee uses them while working.

Where the employer meets the cost directly or indirectly, the capital allowances contributions rules apply.

Special leasing

Where plant or machinery is leased out other than in the course of another qualifying activity (such as a trade or property business), the leasing is 'special leasing'. An example is an individual who occasionally charters out a privately owned yacht.

• Each asset subject to special leasing is a separate qualifying activity, which begins when the asset is first leased and ends when the lessor permanently ceases to lease it.
• The dwelling-house restriction applies.

For Income Tax, allowances are deducted from income from special leasing. Where the lessee does not use the asset for a qualifying activity of their own, the allowances on that asset can only be set against income from leasing that particular asset. Separate rules apply for Corporation Tax.

Companies with investment business

Managing the investments of a company with investment business is a qualifying activity. A company with investment business is one whose business consists wholly or partly of making investments, but does not include a credit union.

• Whether an asset is provided for the management of the company's investments follows the treatment of its revenue costs. If repairs and running costs are management expenses, the cost of the asset can qualify, provided it is plant or machinery.
• Allowances are deducted from the company's income for the period, and any excess is treated as management expenses, which can be set against total profits or carried forward. Balancing charges are taxed as income.

Mines, quarries and other concerns

Profits arising out of land from the following concerns are charged as if they were trade profits, and carrying on such a concern is a qualifying activity:

• Mines and quarries (including gravel pits, sand pits and brickfields).
• Ironworks, gasworks, salt springs or works, alum mines or works, and waterworks and streams of water.
• Canals, inland navigation, docks, and drains or levels.
• Rights of fishing.
• Rights of markets and fairs, tolls, bridges and ferries.
• Railways and other kinds of way.
• Other concerns of the same kind as those in the second to fifth bullets above (but not mines, quarries or railways).

Mixed-use assets

Capital allowances can be claimed for assets that are used for qualifying activities and for private purposes, subject to a restriction for the private use element, which is worked out on a just and reasonable basis.

The restriction applies to any person carrying on a qualifying activity, although companies are rarely affected in practice (see below). It works as follows:

• Where the Annual Investment Allowance or a First Year Allowance is claimed, it is reduced on a just and reasonable basis to reflect the expected non-business use. The full allowance before the reduction is still deducted in calculating the expenditure carried to the pool.
• The asset is put in a single asset pool, and writing down allowances are reduced in the same way.
• Where an asset starts to be used partly for other purposes before any expenditure on it has been pooled, it is likewise put into a single asset pool. Where an asset already in a pool begins to be used partly for other purposes, a disposal value is brought into account and an equal amount is put into a single asset pool.
• Any balancing allowance or charge is calculated in the normal way and then reduced on a just and reasonable basis to reflect the non-qualifying use over the period of ownership.

Where an employer, whether a company or an unincorporated business, provides an asset for a director's or employee's private use as part of their remuneration, HMRC accepts that the expenditure is incurred wholly for the purposes of the employer's qualifying activity.

• No restriction applies to the employer's allowances, and the director or employee is taxed on the benefit in kind instead.
• If the asset is not machinery (e.g. furniture for a director's home), it must still function as plant in the employer's activity.

Interaction with the cash basis

From 2024-25, the cash basis is the default for eligible unincorporated trades, professions and vocations, unless the business elects to use accruals accounting (GAAP). It has been the default for most property businesses run by individuals or partnerships with receipts of £150,000 or less since 2017-18.

• Under the cash basis, capital expenditure is generally an allowable deduction, so capital allowances are not claimed.
• Cars are the main exception. For a trade on the cash basis, capital allowances remain available on cars unless simplified mileage rates have been used for the car.
• For a property business on the cash basis, no deduction is given for capital expenditure on assets used in ordinary residential property; replacement of domestic items relief may be available instead. Capital allowances remain available on cars used in the property business unless mileage rates are claimed.
• Companies, LLPs and partnerships with a member who is not an individual cannot use the cash basis. For property businesses, it is also unavailable to trustees.

Partnerships

A partnership carrying on a qualifying activity can claim allowances on an asset belonging to one of the partners and used in the partnership's activity.

• This does not apply where the partner lets the asset to the partnership, or the partnership makes a deductible payment for its use.

Other capital allowances

The qualifying activities above apply generally to plant and machinery allowances, but some allowances have their own conditions:

• The Structures and Buildings Allowance (SBA) has its own list of qualifying activities. This broadly mirrors the list above but excludes employments and offices and special leasing, and no SBA is available for residential use.
• Research and Development (R&D) allowances are only available to traders, for R&D related to a trade they carry on or later set up. A person carrying on a profession or vocation cannot claim them.
• Most First Year Allowances are not available for plant or machinery provided for leasing, including special leasing and plant in let property. However, the 40% FYA for new main-rate expenditure incurred on or after 1 January 2026 is available for assets leased for use in the UK, broadly where the lessee uses them to earn income within the charge to UK tax.

Example

Priya starts a photography business as a sole trader on 1 May 2026, having bought a van for £24,000 on 10 March 2026. She has elected not to use the cash basis for her trade, and expects to use the van privately 20% of the time. She also lets the flat above her studio and, in June 2026, buys a washing machine for the flat, which did not previously have one, for £600.

• Priya carries on two qualifying activities, a trade and a UK property business, and calculates allowances for each separately.
• The van was bought before trading began, so it is treated as bought on 1 May 2026 and falls into her first period of account, which begins on that date.
• The van is not a car, so Priya can claim the AIA. Because of the private use, the van goes into a single asset pool and the AIA is reduced to £19,200 (80% x £24,000).
• The full £24,000 of AIA is deducted in calculating the expenditure carried to the pool, so nothing is left in the single asset pool to carry forward.
• Priya's election out of the cash basis applies only to her trade, so her property business uses the cash basis by default (assuming her rents are £150,000 or less). No deduction is available for the washing machine, as capital expenditure on assets used in ordinary residential property is not deductible under the property cash basis. The result would be the same under accruals accounting, as plant for use in a dwelling-house is excluded for a property business. Replacement of domestic items relief is not available either, as the machine is not a replacement. If it is later replaced, the cost of the replacement may qualify for that relief.
• Had Priya used the cash basis for her trade, she would instead have deducted the cost of the van as an expense, with an adjustment for the private use.

Useful guides on this topic

What expenditure qualifies for plant & machinery allowances?
What is plant and machinery? What expenditure qualifies as plant and machinery? What is treated as part of a building?

External link

Legislation: Capital Allowances Act 2001, Part 2, Chapter 2