Capital Allowances Glossary

Annual Investment Allowance: The Annual Investment Allowance (AIA) is a capital allowance that gives 100% tax relief in the year of purchase on qualifying plant and machinery, up to an annual limit. That limit has been set permanently at £1 million a year since 1 April 2023, and a single limit is shared across a group of companies.
Capital allowances: Capital allowances are a statutory tax relief that lets a business deduct the cost of qualifying assets, such as the plant, machinery and fixtures built into a commercial property, from its taxable profits. They are set out in the Capital Allowances Act 2001 and are a normal part of the tax system, not a loophole or aggressive planning.
Capital allowances claim: A capital allowances claim is the process of identifying the qualifying plant, machinery and fixtures within a commercial property, valuing them, and setting out the resulting allowances so they can be included in a tax return. The identification and valuation is specialist work; the decision to make the claim and the submission itself rest with the taxpayer's accountant.
Clawback: Clawback is where capital allowances already claimed are effectively reversed, usually through a balancing charge when a property is sold and the fixtures are disposed of. It is the reason capital allowances must be dealt with carefully at the point of sale, so that relief given earlier is not unexpectedly pulled back by HMRC.
Embedded fixtures: Embedded fixtures are the qualifying items of plant and machinery that are built into a commercial property and are easy to overlook because they are part of the fabric of the building. They include heating and hot water systems, electrical and lighting installations, air conditioning, sanitaryware, fitted kitchens and fire and security systems.
Enhanced capital allowances: Enhanced capital allowances (ECAs) were a form of first-year allowance that gave 100% tax relief in the year of purchase on certain energy-saving and water-efficient equipment, listed on the government's Energy Technology List. The main ECA scheme for those products was withdrawn from April 2020, though other first-year allowances continue to exist.
Plant and machinery: Plant and machinery is the category of assets on which most capital allowances are claimed. In a commercial property it covers the fixtures and systems that carry on the business rather than the bare building, including heating, air conditioning, wiring, lighting, sanitaryware, fitted kitchens, security and fire systems.
Section 198 election: A section 198 election is a joint agreement between the buyer and seller of a commercial property that fixes the value attributed to the fixtures for capital allowances purposes. It is made under section 198 of the Capital Allowances Act 2001, must usually be entered into within two years of the buyer acquiring the property, and once made it is irrevocable.
Writing down allowance: A writing down allowance (WDA) lets a business deduct a percentage of the value of its plant and machinery from taxable profits each year, rather than all at once. Most assets sit in the main rate pool at 18% a year, while integral features and other special-rate items are written down at 6% a year, both on a reducing-balance basis.

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