For businesses investing in property, capital allowances can be one of the most valuable tax reliefs available. Yet, the rules are often complex, and many owners fail to maximise their claims simply because they don’t understand which types of expenditure qualify, how timing affects entitlement, and what HMRC expects in terms of compliance.
In this article, we’ll take a closer look at capital allowances from a legislative perspective, focusing on expenditure on buildings, the exclusions under the tax legislation, and the practical aspects of making a robust claim.
A Quick Refresher: What Are Capital Allowances?
Capital allowances provide tax relief by allowing businesses to deduct certain qualifying capital expenditure from their taxable profits. A business is generally not allowed to claim tax relief in respect of depreciation; therefore, capital allowances provide a statutory route to obtain relief.
For property-heavy businesses, such as restaurants, hotels, care homes, and offices, this can mean significant tax savings. But navigating the legislation is key to getting it right.
Expenditure on Buildings: The General Rule
Under tax legislation, expenditure on the provision of a building does not generally qualify for plant and machinery allowances. This is because buildings are considered enduring structures, and the tax system historically distinguishes them from “plant and machinery”.
However, there are important exceptions. While the main fabric of a building (walls, roofs, floors) is excluded (but see below in respect of Structures and Buildings Allowance), certain fixtures, integral features, and qualifying assets do fall within scope.
To help businesses (and HMRC) apply the rules consistently, the legislation includes detailed lists to help taxpayers determine what does and does not qualify for plant and machinery allowances.
The Key Lists in tax legislation
The legislation is structured around three critical lists that govern allowances on building-related expenditure.
Lists A and B: Expenditure not qualifying as plant (buildings, structures and works)
The following expenditure does not qualify for plant & machinery capital allowances. Lists A and B cover buildings and the main structures and features that form the building itself. Examples include:
For restaurants, this might include:
- Walls, ceilings, floors, doors, gates, shutters and windows.
- Mains services, and systems, for water*, electricity* and gas
- Waste disposal systems
- Sewerage and drainage systems
- Shafts or other structures** in which lifts, hoists, escalators and moving walkways are installed
- Fire safety systems*
*this will exclude integral features and assets within list C below.
** Unless the expenditure is required for the trade and can qualify as incidental to the installation of plant and machinery.
Example: If a business is building a new hotel, the expenditure in respect of brickwork, structural walls, and roof costs would all be excluded from plant and machinery allowances. However, the Structures and Buildings Allowance could be available in respect of these costs.
List C: Expenditure that may qualify as plant despite lists A and B
List C is the “positive list”, it overrides the exclusions in Lists A and B and sets out items that may qualify as plant and machinery. Examples include:
- Machinery
- Gas and sewerage systems provided mainly: (a) to meet the particular requirements of the qualifying activity, or (b) to serve particular plant or machinery used for the purposes of the qualifying activity
- Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment.
- Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
- Sound insulation provided mainly to meet the particular requirements of the qualifying activity
- Computer, telecommunication and surveillance systems (including their wiring or other links)
- Refrigeration or cooling equipment.
- Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
- Burglar alarm systems.
- Decorative assets provided for the enjoyment of the public in hotel, restaurant
Example: A hotel installing a new air conditioning system can claim capital allowances, even though the system is integral to the building.
Structures and Buildings Allowance (SBA)
This is a valuable and often overlooked form of tax relief that allows a business to claim a deduction for the cost of constructing, renovating or converting non-residential buildings and structures. The SBA provides a writing down allowance of 3% per annum on eligible construction costs.
While the rate may seem modest, SBA can deliver significant tax savings over time and is particularly important when planning large capital projects, ensuring businesses maximise relief for their long-term investment in commercial property.
Example: A hotel undertaking renovations incurring expenditure on walls, roofs, staircases, hallways can claim SBA’s on that expenditure.
Timing of Expenditure
The timing of expenditure is critical for two reasons:
1. Entitlement
– Capital allowances must generally be claimed by the person who incurred the expenditure.
– On property purchases, allowances transfer only if the appropriate election is made between the buyer and seller.
2. Rate of Relief
– Rules change over time. For example, integral features introduced in 2008 are subject to specific writing down allowances, and “full expensing” currently offers temporary enhanced relief until March 2026.
– Delays in claiming can mean missing out on beneficial transitional rules.
Compliance Aspects
HMRC takes capital allowance claims seriously, and compliance is essential to minimise the risk of an enquiry. Key considerations include:
1. Documentation: Robust evidence is vital. This includes invoices, contracts, and (for property purchases) detailed cost analysis. Without evidence, claims may be reduced or rejected.
2. Apportionment: Where expenditure covers a mix of qualifying and non-qualifying items (e.g., a single invoice for a refurbishment project), costs must be split accurately. This is where specialist input adds value.
3. Consistency: Claims should align with accounting treatment, though adjustments are common. Consistency between tax returns, property records, and capital allowance reports strengthens compliance.
4. HMRC Challenge: While HMRC expects businesses to claim allowances, they also scrutinise them. Claims that are overly aggressive, or unsupported by evidence, risk adjustment. Preparing a clear, defensible report is essential.
Common Pitfalls
- Assuming all building costs qualify – They don’t. Structural elements are excluded under List A.
- Failing to identify fixtures – Embedded assets like cabling, lifts, or heating often go unnoticed.
- Missing retrospective claims – Claims can often be made for historic expenditure, provided records exist.
- Ignoring elections on property purchases – Without proper elections, entitlement to allowances can be lost forever.
Why Use a Specialist?
The capital allowances regime is both an accounting and a surveying exercise. Identifying assets hidden within construction or acquisition costs requires technical expertise. A specialist like CapexOwl can:
- Conduct a property survey to identify all qualifying assets.
- Break down lump-sum invoices into claimable categories.
- Ensure compliance with tax legislation, including Lists A, B, and C.
- Work with accountants to integrate claims seamlessly into tax computations.
Final Thoughts
Capital allowances are one of the most valuable yet underclaimed reliefs available to UK businesses. Understanding which building expenditures qualify and if and where it falls within Lists A, B, and C is the foundation of a successful claim. However, timing, documentation, and compliance are equally important.
For any business investing in property whether building, buying, or refurbishing, capital allowances can achieve substantial tax savings. The key is getting it right from the outset, and ensuring no opportunity is missed.
At CapexOwl, we combine deep technical knowledge with practical experience to help businesses navigate the complexities of capital allowances, delivering compliant, maximised claims that withstand HMRC scrutiny.
Want to know if your building expenditure qualifies?
Speak to CapexOwl today and let us maximise tax relief in your property investment.
