Capital allowances on solar panels: the AIA, the 50% allowance and the 6% pool
Updated 10 November 2026 · SEO Dons Editorial
Which capital allowances can solar panels qualify for?
Solar panels are special rate plant. Section 104A of the Capital Allowances Act 2001 lists expenditure on the provision of solar panels as special rate expenditure, and HMRC's manual at CA22335 dates that from 1 April 2012 for corporation tax and 6 April 2012 for income tax. The classification decides which allowances are open. This is the position on GOV.UK and in HMRC's manual on 10 November 2026:
| Allowance | Who can claim it | Open to solar panels? |
|---|---|---|
| Annual investment allowance (AIA): 100% of cost, up to £1 million a year | Most businesses, with the limits below | Yes. HMRC's guidance says special rate spending may qualify |
| Full expensing: 100% in year one | Companies only, on new and unused plant bought from 1 April 2023 | No. Special rate spending does not qualify |
| 50% first-year allowance | Companies only, on new and unused special rate plant bought from 1 April 2023 | Yes |
| 40% first-year allowance | Companies and unincorporated businesses, on new main rate plant bought on or after 1 January 2026 | No. It excludes special rate spending |
| Special rate writing down allowance | Any business, on special rate spending not relieved another way | Yes, at 6% a year |
Three limits matter in practice. Companies controlled by the same person share one AIA. A partnership can only use the AIA if every member is an individual, so a farming partnership with a company partner cannot. And a sole trader or partnership on the cash basis can only claim capital allowances on business cars.
A company buying new plant for use primarily in a Freeport or Investment Zone special tax site should also ask about the 100% first-year allowance there. HMRC's manual says it is not open to businesses paying income tax, and it ends on 30 September 2031 for English freeports and 30 September 2034 for Scottish and Welsh freeports and all investment zones.
How do the AIA, the 50% allowance and the pool fit together?
Where spending qualifies for more than one allowance the business can choose, but HMRC's manual at CA20008 says it cannot claim more than one allowance on the same amount of expenditure. HMRC's worked example there is a company spending more than the AIA in a year: it puts part of its solar panel spending against the AIA and claims the 50% first-year allowance on the rest. GOV.UK's guidance explains the second step: half the cost is deducted in the year, and the balance goes into the special rate pool in the following accounting period, where it earns writing down allowances.
Timing follows the purchase date. The AIA and first-year allowances have to be claimed in the accounting period in which the item was bought. GOV.UK treats the item as bought when the contract is signed if payment is due within 4 months, and when payment is due if that is more than 4 months later. On hire purchase, a business can claim for all the payments due under the contract once it starts using the item, but not the interest. The AIA is also adjusted when an accounting period is longer or shorter than 12 months.
Allowances reduce taxable profits rather than paying cash. GOV.UK says a business that does not want to claim the full cost, for example because its profits are low, can use writing down allowances instead, or split the cost between the AIA and writing down allowances.
What did Budget 2026 change for solar?
Nothing directly. Budget 2026, published on 28 October 2026, announced two changes to main rate allowances: the main rate first-year allowance rises from 40% to 50% for expenditure from 1 January 2027, and the main rate writing down allowance falls from 14% to 12% for chargeable periods beginning on or after 1 April 2027 for corporation tax and 6 April 2027 for income tax. Both are announcements: the tax information and impact note says legislation will be introduced in Finance Bill 2026-27. The same note says the special rate writing down allowance remains at 6%.
The main rate had already fallen from 18% to 14% in April 2026. Older articles may still mention enhanced capital allowances for energy-saving equipment; HMRC's manual records that those 100% first-year allowances were repealed with effect from April 2020.
Who claims if the building is leased or the array is financed?
The business that incurs the capital expenditure claims, and only if it owns the panels or the law treats it as owning them. HMRC's own example of a fixtures election uses roof-mounted solar panels, and its manual defines a fixture as an asset fixed to a building so as to become part of it in law. For fixtures, Chapter 14 of the 2001 Act decides who is treated as the owner. GOV.UK puts the outcome simply: a business can claim for fixtures whether it rents or owns the building, but only the person who bought the item can claim.
| Arrangement | Who can claim | Why |
|---|---|---|
| Owner-occupier buys the array | The owner | It incurs the cost and holds an interest in the land |
| Tenant pays for an array on a leased building | The tenant | A person with an interest in the land who pays for a fixture is treated as owning it (CA26150); a landlord who contributes can claim only on its contribution, subject to conditions |
| Hire purchase | The business buying on hire purchase | GOV.UK allows the claim once the item is in use, excluding interest |
| Equipment lease (not hire purchase or a long funding lease) | Not the business using the panels | GOV.UK says you must own what you claim on; a lessor with no interest in the land needs a joint election with the lessee to be treated as owner (CA26200) |
| Power purchase agreement with a third-party owner | Not the building occupier | The occupier buys electricity and incurs no capital cost on the panels |
| Part-funded by a grant | The buyer, on the net cost | HMRC's general rule deducts a contribution from the qualifying expenditure (CA14100) |
So tax belongs in the funding comparison, not after it. On a lease or a power purchase agreement any allowances sit with the funder, and HMRC excludes plant bought for leasing from full expensing and the 50% allowance, apart from background plant in a leased building. An election that lets an energy services provider be treated as owner of the fixtures it installs also exists, though HMRC's manual says such elections are now unlikely to be met.
What happens to the allowances when the building is sold?
The panels go with the building as fixtures, and their tax value goes with the paperwork. GOV.UK says a buyer can usually only claim for fixtures the previous business owner claimed for, and must agree their value with the seller or cannot claim for them at all. HMRC expects most buyers and sellers to fix that value by a joint election under section 198 or 199 of the 2001 Act, normally within two years of the buyer acquiring its interest.
HMRC's own example of the election is a building with roof-mounted solar panels bought by an exempt charity: the charity cannot claim allowances, but joins the election so the value can pass to a later buyer. On the selling side, GOV.UK says a business that disposes of an asset on which it claimed the 50% allowance must work out a charge to add to its taxable profits. Buyers should ask for the election, the seller's capital allowances records for the fixtures and the installation invoice before completion.
What should you ask your accountant before signing?
The business claims allowances in its own tax filing, and a company must include a separate capital allowances calculation, so its accountant decides the treatment. These questions change the answer for a solar project:
- Company or unincorporated? Only companies can use the 50% first-year allowance.
- How much AIA is left this year? Other plant bought in the same period, or by companies under the same control, uses the same £1 million.
- When is the expenditure incurred? Payment terms and the year end decide which period the claim falls in.
- How should the invoice be split? Ask how the accountant wants panels, inverters, mounting, electrical work, any battery and any building work shown, and get the installer's invoice itemised to match. The commercial PV systems guide covers what a specification should separate.
- Is there roof work? GOV.UK counts alterations to a building to install plant as plant and machinery, but not repairs, and some spending on constructing or renovating non-residential buildings falls under a separate 3% allowance.
- Is a grant, lease, hire purchase or power purchase agreement involved? Settle who will own the panels for tax before signing.
Indicative figures help that meeting. The savings calculator shows a year-one AIA figure alongside its other estimates, a starting point for the conversation rather than a tax computation. The grants and tax relief guide covers the wider picture, and VAT, which works separately from capital allowances, has its own VAT guide. When the figures are ready, you can send an enquiry through the calculator's form.
Sources
- legislation.gov.uk: Capital Allowances Act 2001, section 104A, checked 10 November 2026.
- GOV.UK (HMRC): Claim capital allowances (overview, annual investment allowance, 50% first-year allowance, 40% first-year allowance, what you can claim on, how to claim), checked 10 November 2026.
- GOV.UK (HMRC): Work out your capital allowances: rates and pools; guidance on checking whether you can claim the 50% first-year allowance (published 20 March 2024); both checked 10 November 2026.
- HMRC Capital Allowances Manual: CA14100, CA20008, CA22335, CA23122, CA23150, CA23174AA to CA23174AC, CA23195A, CA23220 (updated 30 October 2026), CA26025, CA26150, CA26200, CA26478 and CA26850, checked 10 November 2026.
- HM Treasury: Budget 2026 (published 28 October 2026); HMRC: Capital allowances: reduce the main rate writing-down allowance and increase the main rate first-year allowance (published 29 October 2026); both checked 10 November 2026.
Common questions
Can a sole trader or farming partnership use the 50% first-year allowance on solar panels?
No. GOV.UK says only companies can claim the 50% first-year allowance. A sole trader can use the annual investment allowance and then the special rate pool at 6% a year, as can a partnership whose members are all individuals. A business on the cash basis can only claim capital allowances on business cars.
Do second-hand or relocated panels qualify for the 50% allowance?
Not the used parts. The 50% first-year allowance needs plant that is unused and not second-hand, and HMRC's manual says that where new parts are combined with used ones, only the spending on the new and unused parts can qualify. Ask the accountant how the rest is relieved.
Is there still an enhanced capital allowance for energy-saving equipment?
No. HMRC's manual records that the 100% first-year allowances for energy-saving plant were repealed with effect from April 2020. Solar spending now goes through the annual investment allowance, the 50% first-year allowance for companies, or the special rate pool.
Does a grant reduce what can be claimed?
Usually. HMRC's general rule is that a contribution towards qualifying expenditure, including a grant clearly connected with it, is deducted, and allowances are given on the net amount. There are exceptions, which the accountant can check against the grant terms.
Our landlord paid for the panels. Can we claim anything?
Not on the landlord's spending. Under the fixtures rules the person who incurs the expenditure and has an interest in the land is treated as the owner, so the landlord claims. If the tenant pays and the landlord contributes, the tenant claims on its share and the landlord only on its contribution.