Tax Planning
Capital Allowance Changes: Leveraging the 40% First-Year Allowance & Reduced Writing-Down Rate
From 1 January 2026 and 6 April 2026, businesses face key shifts in capital allowances: a new 40% first-year allowance is available, but writing-down allowances drop from 18% to 14%. Know how to adapt both your investments and tax planning accordingly.
By NomadicTax Research Team • 5-8 min read • April 19, 2026
## What are the changes?
- **First-Year Allowance of 40%** takes effect **from 1 January 2026** for qualifying main-rate plant and machinery, including assets bought for leasing and unincorporated businesses. This allows a larger portion of the cost to be deducted up front. ([gov.uk](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
- From **1 April 2026** for **Corporation Tax**, and **6 April 2026** for **Income Tax**, the **main rate writing down allowance (WDA)** for assets not eligible for full expensing is reduced from **18% to 14%**. ([assets.publishing.service.gov.uk](https://assets.publishing.service.gov.uk/media/6929b353345e31ab14ecf735/E03444720_Budget_2025_Web_Accessible.pdf?utm_source=openai))
## Why this matters
- The reduction in WDA means that where you don’t use full expensing or the asset isn’t eligible, tax relief will be spread out more slowly.\
- The 40% first-year allowance softens that by allowing substantial up-front relief for main-rate assets. This makes timing of purchases more important.\
- Helps businesses with investment decisions: it may make sense to bring forward purchases of qualifying assets into periods when you can utilise first-year relief.
## Practical strategies
- **Prioritise eligible assets**: pick assets that qualify for main-rate first-year allowance (new plant & machinery, etc.). Avoid second-hand, cars, or overseas-leased assets for this relief, as these are excluded. ([gov.uk](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
- **Plan timing**: if you plan to invest, do so before 1 January 2026 to take advantage of the first-year allowance; otherwise be aware of lower WDA rates.
- **Tax structure check**: For unincorporated businesses vs companies, understand how full expensing interacts with your tax status.
- **Forecast cashflows properly**, since upfront large deductions reduce taxable profits now but may lead to smaller relief in future years (because remaining assets now get a slower writing down rate).
## Example comparisons
| Scenario | Asset cost £100,000 | Under old system | With 40% First-Year Allowance + 14% WDA |
|---|---|---|---|
| Corporation tax payer buying a qualified asset on 1 February 2026 | Relief: 100% full expensing (if eligible) | Under old system, WDA 18% in year 1 → relief £18,000, then trailing pool |
| Income tax on similar asset for sole-trader from 1 June 2026 | First-year relief £40,000 + WDA 14% on remainder in subsequent years | Was: WDA 18% over years with no large up-front relief |
## Actionable advice for different stakeholders
- **Small businesses / sole traders**: assess whether location of your purchases (company vs individual) changes relief; consider using company structure where more advantageous.
- **Accountants**: run cash flow and profit sensitivity models showing impact under old vs new regimes for clients planning investment-intensive years.
- **Investors / leases**: ensure leased assets are eligible; leased assets bought for leasing aren't always covered by first-year allowance if overseas or second-hand.
**Bottom line:** These changes incentivise investment by front-loading tax relief for eligible assets, but also reduce the attractiveness of slower, long-tail depreciation deductions via writing down allowances. Thoughtful timing, eligibility checks, and strategic planning will unlock maximum benefit.