Following weeks of speculation ahead of what has been one of the most anticipated fiscal updates to date, the Chancellor finally unveiled the key changes within the Autumn Budget 2025. This consisted of some unexpected announcements for capital allowances, with the introduction of a new 40% first-year allowance (FYA).
Key updates for plant and machinery and new 40% FYA deduction
Before the announcements, certain items of plant and machinery were classified as ‘main pool’ plant and machinery and attracted a full expensing 100% FYA. Other items, such as used and second-hand assets and machinery or plant for leasing, were also classified as items of main pool plant and machinery but they were excluded from the 100% FYA. Such items instead attracted writing-down allowances (WDAs) at the rate of 18% on a reducing balance basis.
In her fiscal update, Rachel Reeves lowered the WDA rate for those items of plant and machinery from 18% to 14% but introduced a new 40% FYA for capital expenditure incurred on machinery or plant for leasing. However, the new 40% FYA does not apply to second-hand assets or cars.
What does this mean for businesses investing in commercial property assets?
The majority of businesses investing in commercial property assets incur capital expenditure on either the construction, refurbishment or purchase. Typically, this will include costs acquired on items of mechanical and electrical equipment and other items of fixtures and fittings that are ordinarily found in a property. Such items are known as ‘background plant’ and, as such, they will continue to attract a full expensing 100% FYA.
The slight initial concern with the Autumn Budget announcement was that the reduced 14% WDA might also apply to ‘second-hand’ assets which potentially could have included properties bought second-hand as investment assets. However, ‘background plant’ assets are already carved out from the FYA leasing exclusion so full expensing 100% FYA for main pool plant and machinery will continue to apply to new build properties, extensions, refurbishments and second-hand purchased investment assets.
A positive move for encouraging property investment
It remains to be seen what the effects of the reduction of the WDA from 18% to 14% incurred on items of plant and machinery will be for those businesses that are not entitled to the new 40% FYA deduction.
However, it is pleasing to note that the FYA introduced in the previous Budget remains in place for businesses investing in commercial property assets. This should be a positive move to encourage investment in more efficient plant and machinery in new properties and the acquisition of second-hand properties.