A tenant that pays for improvements to rented premises may be able to claim capital allowances on the parts of the work that count as plant and machinery, including fixtures. A claim is possible whether the business rents or owns the building, but only the person who bought the item can claim. [1] Fit-out work such as electrical and lighting systems, heating, air-conditioning and hot and cold water systems (but not toilet and kitchen facilities) falls within the integral features list, and where writing down allowances are used, integral features go in the special rate pool at 6%. [2]
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What leasehold improvements may qualify
A tenant that pays for fit-out work in rented premises may be able to claim capital allowances on the parts of that work that count as plant and machinery, including fixtures. A business can claim for fixtures whether it rents or owns the building, but only the person who bought the item can claim. [1]
Whether a fit-out may support capital allowance claims depends on which items count as plant and machinery and who paid for them. The guide to the Annual Investment Allowance covers how that allowance may apply to qualifying fit-out spending.
Plant and machinery allowances cannot be claimed on things a business leases, unless it has a hire purchase contract or long funding lease, because the business must own them.
Fit-out items that count as integral features
Much of an office, shop or restaurant fit-out is building services work. Integral features are lifts, escalators and moving walkways, space and water heating systems, air-conditioning and air cooling systems, hot and cold water systems (but not toilet and kitchen facilities), electrical systems including lighting systems, and external solar shading. [2]
Where writing down allowances are used, integral features go in the special rate pool, which has a rate of 6%. Solar panels and thermal insulation added to a building also fall within the special rate pool, which has a 6% writing down allowance rate.
Other plant and machinery bought can be claimed at the main rate, unless the items need to go into the special rate pool or a single asset pool.
Stripping out, alterations and repairs
Many fit-outs start by removing a previous occupier's installations. Plant and machinery includes the costs of demolishing plant and machinery and alterations to a building to install plant or machinery, but this does not include repairs.
That means builder's work needed to fit a new air-conditioning system or new lighting could be looked at alongside the system itself, while patching up an existing installation is a different kind of cost.
Repairs are claimed as business expenses by sole traders and partnerships, and deducted from profits as a business cost by limited companies. In most cases, the value of an item is what was paid for it, so separate invoice lines for stripping out, new installations and repair work could help show what was spent on each.
The integral features list is not the complete list of qualifying plant and machinery, so recording the cost of wiring, heating and other building services separately on fit-out invoices could make any review of the work simpler.
Which allowances may apply to a tenant's fit-out
Capital allowances let a business deduct some or all of the value of an item from its profits before it pays tax, so qualifying fit-out spending may reduce taxable profit for a business that pays Income Tax.
Day-to-day running costs are handled differently: sole traders and partnerships claim them as business expenses, and limited companies deduct them from profits as a business cost.
The main rate of writing down allowance changed from 18% to 14% on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax, and an accounting period that includes the day the rate changed needs a hybrid rate for that period.
Can I claim capital allowances as a self-employed individual?
A self-employed sole trader claims capital allowances on the Self Assessment tax return. Several points affect fit-out work in rented premises.
A sole trader or partnership using the cash basis can only claim capital allowances on business cars.
A sole trader or partnership cannot claim the full value of items also used outside the business, and the capital allowances claimed are reduced by the amount the asset is used outside the business. Such an item goes in a separate pool.
Only companies can claim full expensing and the 50% first-year allowance.
How companies choose and claim allowances on a fit-out
A limited company claims capital allowances on its Company Tax Return and must include a separate capital allowances calculation.
If expenditure qualifies for more than one type of plant and machinery allowance, a person can choose which to claim, but cannot claim multiple allowances on the same amount of expenditure. [3]
HMRC's manual gives the example of a company that spent £500,000 on a new electrical system for its business premises, expenditure that was eligible for the 50% first-year allowance, the AIA or special rate writing-down allowances. [3]
100% first-year allowances can only be claimed on certain plant and machinery, if it is bought new and unused, and the claim must be made in the accounting period the item was bought.
Sources
Rates, thresholds and dates in this guide come from these sources. Check the source for the current figure.