UK Depreciation

Understanding the UK's Pool-Based Allowance System

Unlike many countries that depreciate assets individually, the UK pools most plant and machinery for capital allowances purposes. The Main Pool and Special Rate Pool carry forward unrelieved expenditure indefinitely — there is no time limit on claiming Writing Down Allowance. A business that acquires £500,000 of machinery in year one, claims AIA for the full amount, then buys a used asset for £200,000 in year two (used assets don't qualify for Full Expensing) simply adds it to the pool and claims 14% WDA from April 2026, generating a £28,000 deduction. The reduction from 18% to 14% on the Main Pool, effective for accounting periods beginning on or after 1 April 2026, reduces the net present value of allowances on long-lived assets by approximately 4–6 percentage points depending on the discount rate used.

Full Expensing and the £1 Million AIA Interaction

Full Expensing, introduced in Spring Budget 2023 and made permanent, allows companies to write off 100% of qualifying new main-rate plant and machinery with no monetary cap. The AIA has a permanent £1 million annual limit but covers a broader range of taxpayers including sole traders and partnerships. Strategically, companies spending more than £1 million annually on qualifying new assets benefit most from Full Expensing. A manufacturing company investing £5 million in new production equipment can claim the entire £5 million in year one, generating an immediate 25% corporation tax saving of £1.25 million — more than any other G7 country offers at equivalent asset values. The new 40% First Year Allowance, effective since January 2026, extends to sole traders, partnerships, and leasing assets.

Special Rate Pool: Long-Life Assets and Integral Features

The Special Rate Pool at 6% WDA captures long-life assets (economic life exceeding 25 years), integral building features, and high-emission cars. Integral features — electrical systems, cold water pipes, space heating, lifts, escalators — must be identified separately from the building structure. A hotel refurbishment costing £3 million might allocate £800,000 to integral features in the Special Rate Pool rather than the main pool at 14%, so identifying eligible items precisely during the fit-out stage is worth the extra accounting effort. Thermal insulation added to existing buildings also qualifies as a Special Rate Pool asset, as does expenditure on solar panels installed as part of a building's structure rather than as standalone plant.