Budget 2025 arrived without a headline rate cut or sweeping reforms, but for those paying close attention, the tax landscape is changing in subtle, but significant ways.
While some commentators have focused on rate shifts, fiscal balancing and ‘stealth tax‘, the real story for us one of re-sequencing, particularly around Capital Allowances and property income. And as Jasmine Hill, Tax Director, explains, this new landscape offers clear opportunities for proactive businesses and investors.
Reduction Writing Down Allowances (WDA)
Budget 2025 confirmed that from April 2026, the Writing Down Allowance (WDA) for main pool plant and machinery will be reduced from 18% to 14%. At face value, it might appear like a cut — but according to Jasmine Hill, the change is more about pacing than loss.
“This isn’t a reduction, it’s more of a recalibration of when they claim and how much upfront,” says Jasmine. “Our clients will still receive the full value of their Capital Allowances, but spread over a slightly longer period. That’s a planning issue, not a value issue.”
For financial controllers, that timing matters. Relief delayed could affect cash flow, particularly in capital-intensive sectors like manufacturing or logistics. But with foresight, commercial property owners can manage the change, or even benefit from it.
The 40% First Year Allowance
Arguably the most quietly powerful announcement was the introduction of a 40% First Year Allowance (FYA), taking effect from 1 January 2026.
This new relief applies to most main pool expenditure, including assets acquired for leasing and investments by unincorporated businesses, a major shift for those who’ve previously been excluded from full expensing.
“The new 40% FYA is one of the most attractive parts of this Budget,” Jasmine explains. “It creates immediate relief for expenditure that would otherwise be spread out over years. This accelerates ROI and improves working capital for growing businesses.”
While not as headline-grabbing as full expensing, this targeted measure plugs key gaps, offering significant upfront relief to sectors that have been underrepresented in recent Capital Allowances regimes.
Rising Property Income Tax Rates
From April 2027, property income will be taxed at higher rates, up 2% across all bands, with rates set at:
- 22% (basic)
- 42% (higher)
- 47% (additional)
This change is part of a broader move to bring property income into alignment with income tax. For landlords and high-net-worth investors, it means a rising liability, but also a greater incentive to claim Capital Allowances.
“Higher rates increase the cash value of every pound of Capital Allowances we identify,” Jasmine notes. “This makes claims even more important for offsetting rising property tax bills, particularly for clients with older or underperforming buildings.”
With net rental yields already under pressure from rising interest rates and maintenance costs, Capital Allowances offer a way to reclaim tax-efficient value from existing portfolios, without the need to restructure or divest.
A Familiar Tool in a New Economic Context
What Budget 2025 ultimately reinforces is that Capital Allowances remain a cornerstone of long-term tax efficiency. But they must now be applied more strategically.
In a rising cost environment, with borrowing tightening, yields compressing, and regulatory burdens growing, the ability to claim significant relief on capital expenditure offers a rare point of control.
“The rules are evolving, but the fundamentals haven’t changed,” says Jasmine. “Capital Allowances remain one of the most dependable, high-impact reliefs available to UK businesses. Our role is to make sure clients maximise them, regardless of how the rules shift.”
Our Recommendations: Be Proactive, Act Early.
For commercial property owners and investors seeking to respond effectively to Budget 2025, we continue to recommend the following steps:
- Advance major capital expenditure ahead of April 2026 to benefit from the higher 18% WDA.
- Structure upcoming purchases to align with the 40% FYA eligibility from January 2026.
- Review property portfolios now in anticipation of the 2027 property income tax increases.
- Engage a specialist advisor to ensure claims are optimised under the updated frameworks.
With HMRC increasingly scrutinising claims, the need for professional insight is growing in parallel with the value of the claims themselves.
Budget 2025 may not have brought sweeping reform, but it has recalibrated the playing field. For those who plan ahead, these changes offer real advantages, faster relief, greater cash flow benefit, and enhanced offsetting potential.
“The impact of Budget 2025 won’t be felt by those who wait, it will be felt by those who are actively seeking competitive advantages, and Capital Allowances remain one of the most meaningful tax mechanisms available to commercial property owners that HMA Tax continues” concludes Jasmine.
Want to explore how these changes affect your business or portfolio?
Call HMA Tax on 01384 904090 or email contact@hma.tax to book your free consultation with one of our claims specialists.
