The Autumn Budget delivered on 26 November 2025 introduced a significant shift to the UK’s capital allowances regime. The government focused on encouraging business investment – particularly for sectors previously excluded from generous reliefs.
A New 40% First Year Allowance (FYA) from 1 January 2026
The headline announcement is the introduction of a new 40% first‑year allowance, applying to qualifying main‑rate plant and machinery. This relief fills a long‑standing gap for businesses that couldn’t benefit from Full Expensing, namely leasing and hire businesses and unincorporated businesses.
Key features of the new 40% FYA
- Available to both companies and unincorporated businesses, unlike Full Expensing.
- Leased assets qualify, providing a significant boost to hire and leasing firms.
- Applies to new, unused plant and machinery in the main pool.
Excludes cars and second‑hand assets.
This measure is expected to encourage investment among leasing companies, who historically were unable to claim FYAs and were reliant on slower long‑term relief.
Main Rate Writing Down Allowances Reduced from 18% to 14%
Alongside the new FYA, the Budget confirmed that the main pool Writing Down Allowance (WDA) will be reduced from 18% to 14%, effective from:
- 1 April 2026 for corporation tax payers
- 6 April 2026 for income‑tax payers
This change will slow down tax relief for businesses with significant main‑pool expenditure that cannot benefit from AIA, Full Expensing or the new FYA. Any business with accounting periods spanning the change will be required to apply a hybrid rate.
Autumn Budget 2025 – What hasn’t changed?
Some parts of the capital allowances system remain untouched:
The Annual Investment Allowance (AIA) remains at £1 million, unchanged and available to companies and unincorporated businesses.
Full Expensing (100% FYA) for companies stays in place for qualifying main‑rate assets.
50% first‑year allowances continue for special‑rate assets for companies.
These stable elements mean that, for many SMEs whose expenditure falls within the £1m AIA threshold, the practical impact of the Autumn 2025 Budget may be limited.
In Summary
The Autumn 2025 Budget marks a pivot in UK investment reliefs, introducing a generous new 40% FYA while reducing the main WDA to 14%. The changes provide new opportunities (especially for leasing and unincorporated businesses), but also signal slower tax relief for businesses relying on WDAs. For many firms, strategic timing of expenditure will now become even more important heading into 2026.
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