Capital Allowances: A Practical Guide For Farming Businesses

Capital allowances remain one of the most valuable tax reliefs available to farming businesses. Used correctly, they convert investment in machinery, buildings and infrastructure into significant tax savings, often in the year the expenditure is incurred.

Capital allowances provide tax relief on qualifying capital expenditure used in a trade. Depending on the asset, relief may be available immediately or spread over a number of years.

For most farming businesses, the Annual Investment Allowance (AIA) provides the greatest benefit. It gives 100% tax relief on qualifying plant and machinery expenditure of up to £1 million per year, reducing taxable profits pound for pound in the year of purchase.

Companies can claim 100% first-year relief on qualifying new and unused plant and machinery through full expensing, with no £1 million cap. 

A 50% first-year allowance is also available for special rate assets, such as integral features and long-life assets, with the balance receiving 6% annual relief. 

One common trap is where assets are purchased by a holding company and leased to a trading subsidiary. In these circumstances, full expensing may not be available, so major investment should be carefully structured.

A new permanent 40% first-year allowance applies to qualifying main-rate plant and machinery from 1 January 2026. Unlike full expensing, it is available to both incorporated and unincorporated businesses and can apply to assets purchased for leasing.

Where expenditure does not qualify for upfront relief, or where mixed partnerships include a company or trust partner, writing down allowances are available. Main pool assets such as tractors generally attract 14% relief, while special rate assets, including integral features and certain long-life assets such as solar installations, attract 6% relief.

Certain fixtures within farm buildings qualify as integral features rather than being treated as part of the building itself. Examples include: 

• Electrical systems
• Water systems
• Air conditioning and ventilation systems 

Identifying these items correctly can significantly increase the value of a claim, particularly as the building itself attracts little relief.

Where expenditure relates to the structure itself rather than plant within it, relief may be available through the Structures and Buildings Allowance

Qualifying costs can include: 

• New agricultural buildings
• Building extensions
• Farm roads, bridges and fencing 

SBA provides relief at 3% per year over 33⅓ years

Some specialist assets fall into a grey area between buildings and plant. Examples include: 

• Slurry tanks and pits
• Silage clamps
• Anaerobic digestion plants 

Where these assets perform a function within the trade rather than simply providing an enclosure, they may qualify as plant and potentially attract 100% relief rather than SBA at 3%.

If expenditure is partly funded by a grant, capital allowances are generally restricted to the cost borne by the business

To maximise relief: 

• Review annual capital expenditure to ensure all available allowances are claimed.
• Consider historic expenditure reviews, as missed claims may still be available.
• Plan the timing and structure of major projects, particularly where companies, group structures or grants are involved.

Done well, capital allowances can substantially reduce tax liabilities while releasing cash to reinvest back into the farming business.

If you would like help reviewing historic expenditure, structuring a future investment or maximising your capital allowances claim, please get in touch.