UK Budget 2025: PwC comments on Capital Allowances

Matthew Greene, Capital Incentives Director, PwC UK said:  
 
“While companies will welcome that retention of Full Expensing, the Chancellor also introduced two targeted changes from 2026 - reducing the main writing down allowances (WDA)  rate from 18% to 14% and introducing a new 40% first-year allowance for leased assets and for qualifying expenditure incurred by unincorporated businesses. These changes apply only to expenditure that does not qualify for Full Expensing, such as assets used for leasing, second-hand assets and cars.

“The 40% First Year Allowances (FYA) partly offsets the impact of the lower WDA rate and reflects the growing trend of leasing in business investment, though still falls short of the 100% relief available for such assets if acquired directly and by companies. In contrast, the reduction to a 14% WDA will slow tax relief for expenditure on second-hand plant and machinery above the Annual Investment Allowance (AIA) limit and may discourage the re-use of assets. Whilst intended to balance fiscal pressures with a desire to stimulate new investment, this may sit less comfortably alongside wider sustainability ambitions.

“Overall, the package represents a refinement of longer-term deductions rather than a shift in the UK’s wider investment incentives. Businesses with significant historical capital expenditure will see a slowing in expected deductions from brought-forward pools and should assess how the new rates interact with existing allowances and future investment plans. For companies, ensuring Full Expensing is fully utilised - and reviewing intra-group, procurement and financing arrangements, will be essential.”

Our full Budget reaction