Capital Allowances on Solar Panels UK 2026

Solar panel capital allowances give UK businesses 100% first-year tax relief on commercial PV, up to the £1,000,000 Annual Investment Allowance cap. Capital allowances on solar panels are special-rate plant and machinery, so solar panels capital allowances never qualify for Full Expensing — above the AIA cap the correct relief is the 50% first-year allowance, with the balance written down at 6% a year in the special rate pool. That one distinction is the single most common error in published guidance on this subject, and getting it wrong on a CT600 is an adjustment waiting to happen. This page covers the pools, the six reliefs and which ones solar actually gets, worked capex scenarios from £25,000 to £1.5m, unincorporated businesses and partnerships, loss-making companies, landlords versus owner-occupiers, and what happens on disposal. For our canonical detailed page, see Annual Investment Allowance.

What capital allowances are and why they matter for solar

Capital allowances are HMRC's mechanism for giving tax relief on capital expenditure on plant and machinery. Without capital allowances, the cost of a £100,000 solar PV install would only be deductible from trading profits across its 25-year asset life — roughly £4,000 per year. With capital allowances, you can claim a substantial portion (or all, under AIA) of that capex against trading profits in the year the asset is brought into use. AIA is the single most important driver of commercial solar payback maths in 2026 — it converts a 7-year simple payback into a 5-year payback by reducing net effective capex by 25%. The HMRC published guidance on plant and machinery allowances is at gov.uk.

100% Annual Investment Allowance: the headline relief

AIA is the most common relief used on commercial solar PV. The rules in 2026: limited companies, sole traders, and partnerships can claim 100% AIA on qualifying plant and machinery expenditure up to £1,000,000 per accounting period. The £1m cap was made permanent in the Autumn Statement 2022 and remains in force in 2026. Solar PV qualifies as plant and machinery — the panels themselves, the mounting structure, inverters, DC and AC cabling, isolators and switchgear directly related to the PV system, and the installation labour are all qualifying expenditure. New ancillary roof construction (such as building a new roof solely to mount panels on, where the existing roof was structurally inadequate) generally also qualifies. Routine roof repair or remediation that would have been needed regardless of the PV install does NOT qualify and must be itemised separately on the invoice.

Above the £1m AIA cap: the 50% special-rate first-year allowance

A frequent error in commercial solar tax planning is assuming full expensing covers the spend above the AIA cap. It does not: full expensing (introduced April 2023, made permanent in the Autumn Statement 2023) applies to main-rate plant and machinery only, and solar PV is special-rate plant — a long-life asset with an expected useful life over 25 years. The correct mechanism for limited companies is the 50% First Year Allowance on special-rate expenditure: for a 1.5 MW commercial solar install at £1.05m turnkey, AIA covers the first £1m in full, and the 50% FYA relieves £25k of the £50k excess in year one, with the remaining £25k entering the special rate pool at a 6% writing-down allowance. Sole traders and partnerships cannot use the 50% FYA — they are limited to AIA. In practice, because most commercial installs sit well inside the £1m cap, AIA alone delivers 100% year-one relief on the whole system.

Two conditions attach to the 50% FYA that AIA does not impose. The plant must be new and unused — a second-hand array bought with a building does not qualify (AIA still can). And the relief is corporation tax only: it is unavailable to sole traders, partnerships and any unincorporated business. Plant bought in order to lease it to someone else is also excluded, which matters to landlords structuring a solar-as-a-service arrangement.

The 31 March 2026 deadline you may have read about no longer exists. The 50% first-year allowance was originally announced at Spring Budget 2023 as a temporary measure running to 31 March 2026. At Autumn Statement 2023 the government confirmed that full expensing and the associated 50% first-year allowance for special-rate expenditure would be made permanent, and Finance Act 2024 removed the 1 April 2026 end date from the legislation. Both are permanent reliefs in 2026. A large amount of solar and accountancy content still published today repeats the superseded expiry date and pushes clients into rushing a project for a cliff edge that was legislated away. There is no such cliff edge.

The six reliefs, and which ones solar panels actually get

Most confusion in this area comes from treating "capital allowances" as one thing. There are several distinct reliefs, each with its own rate, cap and eligibility, and solar PV qualifies for some and is specifically excluded from others. This is the whole picture on one screen.

Read the table in order and the decision is mechanical. Solar PV is special-rate plant, which immediately rules out Full Expensing and the 18% main rate pool. AIA is available to every business type and relieves 100% of the first £1m, so it is the answer for the overwhelming majority of commercial installs. Only spend above £1m needs the 50% first-year allowance, and only a company can use it. Whatever is left sits in the special rate pool at 6%. SBA is a separate relief on the fabric of the building and never applies to the array itself, though it can apply to a new structure such as a purpose-built canopy or carport that the panels are mounted on — that split has to be made on the invoice, not after the event.

Worked example: £25,000 install for a small business

A 25 kW solar install on a small office or retail unit costs approximately £25,000 turnkey in 2026. The business is a UK limited company at the 25% main rate of corporation tax with sufficient trading profits to absorb the relief.

• Capex: £25,000
• AIA claim: £25,000 (full capex, well inside £1m cap)
• Year-one corporation tax saving: £25,000 × 25% = £6,250
• Net effective capex: £18,750
• Year-one savings (typical 25 kW install): £4,500–£6,000
• Simple payback on net capex: 3.1–4.2 years

Sole trader version: same maths but applied through self-assessment at the trader's marginal income tax rate. A sole trader at 40% gets £10,000 of year-one tax relief, dropping net capex to £15,000 and accelerating payback further.

Worked example: £80,000 install for a mid-size SME

An 80 kW solar install on a mid-size warehouse or manufacturing facility costs approximately £80,000 turnkey in 2026. The business is a UK limited company at the 25% main rate with strong trading profits.

• Capex: £80,000
• AIA claim: £80,000 (full capex)
• Year-one corporation tax saving: £80,000 × 25% = £20,000
• Net effective capex: £60,000
• Year-one savings (typical 80 kW install): £14,000–£18,000
• Simple payback on net capex: 3.3–4.3 years
• 25-year NPV at a 7% discount rate (flat savings, net of the £60,000 AIA-adjusted capex): £103,000–£150,000

This is the most common SME scenario in our portfolio — capex small enough to fund from cash flow or a single year's retained profit, large enough to deliver substantial tax relief and meaningful annual savings. See our cost page and commercial solar costs guide for full sub-vertical pricing.

Worked example: £200,000 install for a larger industrial site

A 250 kW solar install on a logistics warehouse or larger manufacturing site costs approximately £200,000 turnkey in 2026. The business is a UK limited company at the 25% main rate with sufficient trading profits.

• Capex: £200,000
• AIA claim: £200,000 (full capex, inside £1m cap)
• Year-one corporation tax saving: £200,000 × 25% = £50,000
• Net effective capex: £150,000
• Year-one savings (typical 250 kW install): £40,000–£55,000
• Simple payback on net capex: 2.7–3.75 years
• 25-year NPV at a 7% discount rate (flat savings, net of the £150,000 AIA-adjusted capex): £316,000–£491,000

At this scale, the AIA relief alone (£50,000) often exceeds the deposit on an asset finance package. Companies sometimes use AIA-claimed cash to fund the deposit on a second project, multiplying their capex deployment in a single tax year.

Solar panel capital allowances by capex size

Four scenarios for a profitable UK limited company paying corporation tax at the 25% main rate, with enough taxable profit in the accounting period to absorb the full deduction, buying new and unused solar PV. Indicative system size uses the 2026 turnkey range of £700–£1,200 per kW. Year-one deduction is AIA plus the 50% first-year allowance; the balance of the FYA expenditure enters the special rate pool in the following accounting period and is written down at 6% a year on a reducing balance.

Net effective capex after year-one relief is therefore £37,500, £187,500, £750,000 and £1,187,500 respectively. The £1.5m case is not permanently worse off — the £250,000 sitting in the special rate pool still attracts relief, just slowly. At 6% on a reducing balance it releases £15,000 of deduction in the first full year, £14,100 in the next, and so on, worth a further £62,500 of corporation tax spread across roughly two decades. Total lifetime relief in every row is 25% of capex: £12,500, £62,500, £250,000 and £375,000. The difference between rows is purely timing, and timing is exactly what a discounted cash flow is sensitive to — which is why the £1m cap is the number that changes a large project appraisal, not the headline capex.

Three adjustments to apply before you copy these figures into a board paper. First, if the company pays less than the 25% main rate the saving falls with it: the 19% small profits rate applies to augmented profits up to £50,000, and between £50,000 and £250,000 marginal relief produces an effective rate of 26.5% on the top slice — so a deduction that pulls profits down through that band is worth more than 25p in the pound, not less. Second, the deduction is capped by available profit; a company without the profit to absorb it creates a loss instead (see below). Third, the AIA cap is shared across companies under common control, so a group cannot claim £1m each.

Sole traders and partnerships read the same table with two changes: replace 25% with your marginal income tax rate of 20%, 40% or 45%, and delete the 50% FYA column entirely. It is a corporation tax relief, so for an unincorporated business the whole £500,000 excess in the bottom row goes straight into the special rate pool at 6%.

Sole trader and partnership treatment

Sole traders and partnerships have two routes for solar capital allowances. Accruals basis accounting uses the standard AIA at 100% up to £1m per accounting period, identical to the corporate route but applied through self-assessment at the sole trader's or partner's marginal income tax rate. A higher-rate taxpayer at 40% on a £40,000 install gets £16,000 of tax relief in year one. Cash-basis accounting works differently, and the old £150,000 turnover entry threshold no longer applies — the cash basis became the default for eligible sole traders and partnerships of individuals from the 2024-25 tax year, with the turnover restrictions removed. Under the cash basis you cannot claim capital allowances at all (cars are the single exception), but qualifying capital expenditure such as solar PV is deducted as an ordinary business expense in the period it is paid. The year-one economics land in the same place as 100% AIA; the mechanism, the tax return boxes and the disposal treatment do not. If you are financing the array, note the difference: the cash basis follows the payments, so a hire purchase or deferred-payment structure changes when relief lands. Sole traders with significant other capex in the same year may prefer to spread relief by electing not to claim full AIA — this is rare for solar but possible. Partnerships claim AIA at the partnership level and split relief among partners according to profit-sharing ratios.

Two hard limits apply to unincorporated businesses that catch people out. Neither Full Expensing nor the 50% first-year allowance is available to them — both are corporation tax reliefs, companies only, and Full Expensing is closed to solar for every business type regardless, because solar PV is special-rate plant — so above the £1m AIA cap a sole trader or partnership gets nothing in year one and the excess simply enters the special rate pool at 6% a year. And AIA is not available to a mixed partnership: if any partner is a company or another partnership, the partnership cannot claim AIA at all and falls back on 6% writing-down allowances. For a farming or property partnership with a corporate partner planning a six-figure array, that is the difference between full relief this year and relief dribbling out over decades, and it is usually fixable before the invoice is raised rather than after.

Special rate pool considerations

Solar PV is technically classified as a long-life asset (expected useful life over 25 years) which under the standard rules sits in the special rate pool with 6% writing-down allowance. However, AIA is available for both main-rate and special-rate pool assets up to the £1m annual cap — and note that full expensing does not apply to solar, because it covers main-rate plant only. For limited companies on capex above £1m, the 50% First Year Allowance (FYA) for special rate pool assets is the relevant relief, with the remaining 50% added to the special rate pool at 6% WDA. In practice, the vast majority of commercial solar installs sit inside the £1m AIA cap and use AIA exclusively. Only the largest projects (multi-MW utility-scale arrays) hit the cap and need to consider FYA mechanics.

Loss-making companies and the option to claim less

Capital allowances are a deduction in computing trading profit, not a credit against tax, so a company without enough profit to absorb them does not lose the relief — it creates or increases a trading loss instead. That loss has four possible destinations. It can be set against total profits of the same accounting period, including non-trading income such as interest or rental profit. It can be carried back twelve months against total profits of the preceding period, which for a company that was profitable last year turns a solar investment into an actual corporation tax repayment rather than a future deduction. It can be surrendered as group relief to a profitable fellow group company in the same period. Or it can be carried forward indefinitely against total profits, subject to the group-wide £5,000,000 deductions allowance and the 50% restriction that applies to carried-forward losses above it.

What capital allowances never do is pay out in cash. Unlike the R&D regime there is no payable credit, so a pre-revenue or persistently loss-making business is deferring relief, not banking it. That is worth modelling honestly in the appraisal: a 25% year-one tax saving that actually arrives in year six is worth materially less in present-value terms, and it is the reason some loss-making businesses are better served by an operating lease or a power purchase agreement, where the payments are revenue deductions taken as they fall rather than allowances waiting for profit.

The mirror-image point matters just as much. Capital allowances are optional and divisible — you can claim less than the maximum and leave the balance in the special rate pool to be written down at 6% in later years. Deliberately under-claiming is the right answer more often than people expect. A company sitting just above £50,000 of augmented profits, where marginal relief makes the effective rate on the top slice 26.5%, may be better off claiming enough AIA to strip out the expensively taxed slice and carrying the rest forward, rather than crushing profits to nil and relieving expenditure at 19%. A sole trader who claims full AIA and wipes out taxable profit throws away the personal allowance, which cannot be carried forward. Model the claim; do not default to the maximum.

Landlords versus owner-occupiers

For an owner-occupier — a trading company or unincorporated business putting solar on premises it occupies and trades from — the position is simple. The array is plant used in the qualifying activity, AIA applies to the first £1m, and the analysis in the tables above holds without modification. This covers the large majority of commercial installs: manufacturers, warehouse operators, hotels, care homes, farms and retailers generating for their own consumption.

For a landlord, a UK property business is itself a qualifying activity for plant and machinery allowances, so a commercial landlord installing PV on a let office, industrial unit, warehouse or shop can claim on the same basis. Three restrictions then bite. First, section 35 of the Capital Allowances Act 2001 denies allowances on plant installed in a dwelling-house where the qualifying activity is a property business, so PV serving residential lettings is out — though plant serving the common parts of a block of flats is not in a dwelling-house, which can preserve part of a claim on a communal system. Second, the furnished holiday lettings regime, which used to give FHL owners access to capital allowances that ordinary residential landlords never had, was abolished from 6 April 2025 for income tax and 1 April 2025 for corporation tax; new FHL expenditure no longer qualifies. Third, plant bought in order to lease it to someone else is excluded from Full Expensing and the 50% first-year allowance — Full Expensing does not reach solar anyway, since solar PV is special-rate plant, and AIA is unaffected, but a landlord structuring a solar-as-a-service or equipment-lease arrangement above the £1m cap needs the 50% FYA restriction flagged before contracts are drawn.

Then there is the split incentive: the landlord pays for the array, the tenant sees the bill reduction. The usual answers are recovering the capex through the service charge, selling the generated power to the tenant under a private wire arrangement, or a green lease clause sharing the saving. Each has a different tax profile — selling power may constitute a separate trade rather than property income, which changes both the capital allowances analysis and the loss rules — so the structure needs settling before the invoice is raised, not after. Business rates are a separate question again: onsite renewable generation attracts targeted relief in England, and we cover the current position on our business rates on solar panels page.

Disposal and balancing charges

Relief is not permanent if the asset leaves the business. Selling the array, scrapping it, or selling the building it is fixed to are all disposal events, and each usually produces a balancing charge — an amount added back to taxable profit. Finance directors routinely model the year-one saving and never model this, which overstates the after-tax return on any project with a realistic exit inside the asset life.

Where 100% AIA was claimed, the disposal value is deducted from the special rate pool. Because AIA already relieved the whole cost, that pool often has little or no balance attributable to the array, so most of the proceeds surface as a balancing charge taxed at the prevailing corporation tax rate. Where the 50% first-year allowance was claimed, HMRC applies a specific formula: halve the expenditure that received the 50% FYA, divide the result by the total expenditure claimed or pooled for that asset, and multiply the disposal value by that proportion. Where the 50% FYA covered the entire cost the proportion works out at exactly one half — half the disposal value is an immediate balancing charge and half is deducted from the special rate pool.

Worked example (illustrative). Take the £1,500,000 row from the table above: AIA of £1,000,000, the 50% first-year allowance claimed on the £500,000 excess, and £250,000 carried into the special rate pool. Eight years later the company sells the site plant for £150,000. Halve the FYA expenditure (£500,000 ÷ 2 = £250,000), divide by total expenditure (£250,000 ÷ £1,500,000 = one sixth), and apply that to the disposal value: £150,000 × 1/6 = a £25,000 balancing charge, costing £6,250 in corporation tax at 25%. The remaining £125,000 is deducted from the special rate pool, reducing future writing-down allowances rather than creating an immediate charge. Net cash cost of the disposal in tax terms: £6,250 in the year of sale.

The fixtures point is the one that causes real damage. Solar panels bolted to a building are fixtures in law, which means selling the property disposes of them too. Under the fixtures rules the seller must have pooled the expenditure, and the parties normally need a section 198 election — signed within two years of completion and stating an agreed transfer value — for the buyer to claim anything at all. Miss it and the allowances are lost permanently to both sides, which is a live negotiating point on price. Raise it at heads of terms with your solicitor, not at completion. It also cuts the other way: if you are buying a commercial building with an existing array, a capital allowances review before exchange can uncover unclaimed relief the seller never pooled.

R&D tax credit interactions

Standard commercial solar PV installs are not R&D — they deploy mature, commercially-available technology in a routine engineering pattern. But businesses claiming R&D enhanced expenditure on other activities (manufacturing process R&D, new product development, software R&D) need to sequence their capital allowances carefully. The general principle: AIA on solar should be claimed first against trading profits, reducing taxable profit before R&D enhanced expenditure is applied. Reversing the sequence can waste relief because R&D enhancement creates losses that AIA can't offset against — losses created by R&D enhanced expenditure can be surrendered for an R&D credit, but unused AIA cannot. Always confirm sequencing with your accountant or R&D specialist before submitting the CT600.

Battery storage and capital allowances

Battery storage installed alongside solar PV qualifies as plant and machinery on the same basis as the PV system itself — 100% AIA up to the £1m cap, with the 50% special-rate first-year allowance for limited-company spend above it. This includes the battery cabinet, hybrid or AC-coupled inverter, battery management system, fire suppression, switchgear, cabling and installation labour. A combined PV-plus-battery install at £150,000 (£95k PV + £55k battery) sits comfortably inside the AIA cap and delivers £37,500 of year-one corporation tax relief. See our battery storage page for full sizing and economics.

Practical claim mechanics

Four things to get right when claiming. First, the invoice from the installer must itemise plant and machinery costs separately from any non-qualifying ancillary spend (new roof construction not required for the PV, structural alterations beyond what's needed to mount the array, business interruption costs). Every quote we issue itemises in this format by default. Second, the asset must be brought into use in the accounting period the AIA is claimed — meaning the system has to be commissioned and generating, not just delivered to site. Third, the CT600 (for limited companies) or self-assessment (for sole traders and partnerships) needs the AIA claimed in the correct box — capital allowances in the corporation tax computation, with the £1m cap applied at company level and shared across group companies under common control. Fourth — and this is the one most often missed — qualifying expenditure is net of any grant or subsidy. If public funding met part of the installation cost, that part is not expenditure the business bore, so it must be stripped out before AIA or the 50% FYA is calculated. Claiming on the gross invoice when a grant covered part of it is a routine reason for a claim to be adjusted on enquiry. Keep the award letter filed with the invoice so the net figure is evidenced. See HMRC's published guidance at gov.uk.

VAT treatment alongside capital allowances

Commercial solar PV in the UK is subject to 20% VAT at standard rate (the 0% domestic rate introduced in April 2022 applies only to residential installations — commercial sites are not eligible). VAT-registered businesses recover the input VAT in full through the next quarterly VAT return, so the cash impact is timing rather than absolute. The AIA claim is calculated on the net-of-VAT cost (the actual cost to the business after VAT recovery). Non-VAT-registered businesses include the VAT in the AIA-eligible capex. Partial-exemption businesses recover VAT on the proportion of the install attributable to taxable activity — typically irrelevant for trading businesses, occasionally relevant for charities, education and certain financial services. Our full guide to VAT on solar panels in the UK covers the commercial and residential rates, recovery mechanics and the charity and partial-exemption edge cases in detail.