What is the annual investment allowance?
Answered 11 March 2026
Annual Investment Allowance (AIA)
What the law says
The AIA is a capital allowance available in respect of qualifying expenditure on plant or machinery, introduced by Schedule 24 of the Finance Act 2008 and governed by section 51A of the Capital Allowances Act 2001 (CAA 2001).
Current maximum allowance: £1,000,000
The maximum allowance has been set at £1,000,000 permanently from 1 April 2023 onwards. This was first introduced as a temporary measure for expenditure incurred between 1 January 2019 and 31 March 2023, and then made permanent by subsequent legislation: "The amount of £1,000,000 which is specified in section 51A(5) of CAA 2001 as the maximum allowance... is to be the amount of the maximum allowance in relation to expenditure incurred on or after 1 April 2023".
Historical maximum allowance figures (for context):
- £200,000 from 1 January 2016
- £25,000 from 1 January 2016 (prior to the FA 2016 increase)
- £100,000 from April 2010
Restrictions on use of AIA losses: Sideways relief is not available to an individual for so much of a trading loss as derives from an AIA. Similarly, no property loss relief against general income may be given where a loss attributable to an AIA arises from relevant tax avoidance arrangements.
HMRC guidance / practice
What it is: HMRC describes the AIA as "effectively a 100% first-year allowance for business expenditure on almost all plant or machinery (apart from cars) capped at a maximum allowance. It is available to businesses regardless of their size or legal form."
When it was introduced: The AIA was introduced for expenditure incurred on or after 1 April 2008 for corporation tax purposes and on or after 6 April 2008 for income tax purposes.
Key features (per HMRC's Capital Allowances Manual):
- Must be claimed by a qualifying person (CA23082)
- The qualifying expenditure must be AIA qualifying expenditure — covering almost all plant or machinery, subject to a small number of general exclusions (notably cars are excluded)
- If the chargeable period is more or less than a year, the maximum must be proportionately increased or reduced
- Taxpayers are not obliged to claim the AIA — they may choose to claim all, part, or none of it
- There are restrictions where an asset is partly used for non-business purposes, or where two or more businesses under common control are "related"
Partnership restriction: A partnership of which a company is a member is not a qualifying person for AIA purposes and cannot claim AIA. Similarly, a partnership which includes another partnership as a member (e.g. an LLP) is not a qualifying person.
Claiming the AIA: The AIA can only be claimed in the chargeable period in which the expenditure is incurred. Where AIA is only claimed on part of the qualifying expenditure, the remaining expenditure must be pooled and will be subject to writing-down allowances.
Practical example: HMRC illustrates that a company with £1m of AIA can use it across different categories of plant and machinery (e.g. electrical systems and solar panels), with remaining expenditure eligible for other allowances such as first-year allowances or writing-down allowances.
Citation sources
Part 1 Charges, rates etc Capital allowances Annual investment allowance 5 1 In section 51A(5) of CAA 2001 (entitlement to annual investment allowance: maximum allowance), for “£50,000” substitute “ £100,000 ” . 2 The amendment made by subsection (1) has effect in relation to expenditure incurred on or after the relevant date. 3 Subsections (4) and (5) apply in relation to a chargeable period (“the actual chargeable period”) which— a begins before the relevant date, and b ends on or after that d
In its accounting period ending 31 December 2024, Hunter and Ball Ltd incurs the following expenditure on plant and machinery: £250,000 on new laptops; £600,000 on new solar panels; and £500,000 on a new electrical system for the business premises. The expenditure on laptops is available for full expensing (CA23174A), the Annual Investment Allowance (AIA) (CA23080) or main rate Writing-Down Allowances (WDAs) (CA23200). The expenditure on the solar panels and the electrical system is eligible for
The Annual Investment Allowance is available to businesses regardless of size. It was introduced for expenditure incurred on or after 1 April 2008 for CT purposes and on or after 6 April 2008 for IT purposes. Detailed guidance can be found at CA23080 onwards. It is important to note, however, that partnerships are only eligible to claim the allowance if all the members are individuals. A partnership of which a company is a member is not a qualifying person for Annual Investment Allowance (AIA) p
PART 1 Direct taxes Capital allowances Temporary increase in annual investment allowance 32 1 In relation to expenditure incurred during the period beginning with 1 January 2019 and ending with 31 March 2023 , section 51A of CAA 2001 (entitlement to annual investment allowance) has effect as if in subsection (5) the amount specified as the maximum allowance were £1,000,000. 2 Schedule 13 contains provision about chargeable periods which straddle 1 January 2019 or 1 April 2023 .
A REIT company can claim first year allowances (FYAs such as the super-deduction or full expensing) or the annual investment allowance (AIA). Unlike the mandatory inclusion of capital allowances noted above, the usual rules for FYA or AIA claims apply. The REIT should make a claim for the FYAs or AIA and this may be a full or partial claim (see CA23110 for FYAs and CA23085 for AIA). Where FYAs or AIA are only claimed on part of the qualifying expenditure, the remaining expenditure must be poole
PART 1 Principal rates etc Capital allowances Annual investment allowance 8 1 In section 51A of CAA 2001 (entitlement to annual investment allowance), for the amount specified in subsection (5) as the maximum allowance (which in the absence of this section would be £25,000 in relation to expenditure incurred on or after 1 January 2016) substitute “ £200,000 ” . 2 The amendment made by subsection (1) has effect in relation to expenditure incurred on or after 1 January 2016. 3 Subsection (2) is su
Part 4 Loss relief Chapter 2 Trade losses Restrictions on sideways relief for certain capital allowances First-year allowances and annual investment allowances : introduction 76 Sideways relief is not available to an individual for so much of a loss as derives from an annual investment allowance or a first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 applies.
Part 4 Loss relief Chapter 4 Losses from property businesses Restrictions on relief No relief for tax-generated losses attributable to annual investment allowance 127A 1 This section applies if— a in a tax year a person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), b the loss has a capital allowances connection (see section 123(2)), and c the loss arises directly or indirectly in consequence of, or otherwise in connection with,
The AIA is effectively a 100% first-year allowance for business expenditure on almost all plant or machinery (apart from cars) capped at a maximum allowance. It is available to businesses regardless of their size or legal form. The current and past AIA maximums and the date ranges for which they apply can be found on ‘Claim capital allowances - Annual investment allowance’, gov.uk.
If an individual claims the trading allowance they are not allowed to deduct any allowable expenditure from their profits for the same period, including any capital allowances. This is illustrated by the example at BIM86080. It is up to the individual to determine for each chargeable period whether to claim the trading allowance or to deduct allowable expenditure, including capital allowances. Certain capital allowances, such as the Annual Investment Allowance (see CA23080) and First Year Allo
Part 1 Charges, rates, allowances etc Capital allowances Annual investment allowance 11 1 Section 51A of CAA 2001 (entitlement to annual investment allowance) is amended as follows. 2 In subsection (5) (maximum allowance), for “£100,000” substitute “ £25,000 ” . 3 In subsection (8) (power to amend maximum allowance), for “other” substitute “ greater ” . 4 The amendment made by subsection (2) has effect in relation to expenditure incurred on or after the relevant day. 5 Subsections (6) and (7) ap