Autumn Budget 2026: changes to capital allowances and LRR

The 2026 Autumn Budget introduce several changes to capital allowances and business investment incentives. The government plans to increase the main rate first-year allowance from January 2027, reduce the writing-down allowance rate from April 2027, and retain full expensing.

Alongside these changes, the government has also announced updates affecting predevelopment costs, amendments to leasing anti-avoidance legislation and wider access to advance tax certainty. An update from HM Treasury (HMT) has also confirmed that Land Remediation Relief will remain unchanged, while planned improvements to HMRC guidance and a proposed brownfield planning exemption could affect future projects.

Budget announcements

The government proposes increasing the main rate first-year allowance from 40% to 50% for qualifying expenditure incurred on or after 1 January 2027. It also proposes reducing main rate writing down allowances from 14% to 12%, from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.

The lower rate will slow relief on existing main pool balances, as well as expenditure that does qualify for upfront relief. HMRC’s policy paper confirms that a hybrid rate will apply to chargeable periods that span the relevant April commencement date.

Legislation for the rate changes is planned for Finance Bill 2026–27. Full expensing is retained without an expiry date. Eligible companies, including corporate members of mixed partnerships where the conditions are met, can continue to claim a 100% deduction for qualifying new and unused main rate plant and machinery in the period of expenditure.

Assets acquired for leasing are generally excluded, subject to existing exceptions. The proposed main rate 50% allowance remains distinct from the existing special rate 50% first-year allowance.

Who could benefit from the higher first-year allowance?

For expenditure eligible for the main rate first-year allowance, the proposal would increase the initial deduction by 10 percentage points. The allowance is available to businesses subject to Corporation Tax or Income Tax, including unincorporated businesses. It can also cover qualifying assets acquired for leasing, subject to the relevant conditions.

HMRC’s current guidance requires assets to be new and unused. The Budget policy paper describes a rate increase rather than an extension to second-hand assets. Businesses already able to fully expense that expenditure would not gain a larger upfront deduction from this change.

The Annual Investment Allowance (AIA) also remains an important consideration. Its usual £1 million annual limit can provide full deductions for eligible expenditure outside full expensing, subject to eligibility and sharing rules. It does not accelerate deductions on existing pool balances.

Predevelopment costs remain under review

The government has published its summary of responses to the consultation on the tax treatment of predevelopment costs and will work with stakeholders to explore improvements to HMRC guidance.

This follows the litigation concerning the Gunfleet Sands and West of Duddon Sands projects, including the Supreme Court’s decision in Orsted West of Duddon Sands (UK) Ltd and others v HMRC.

The government has prioritised greater clarity on the existing rules, rather than introducing a legislative extension of qualifying expenditure.

For property and infrastructure projects, the distinction between qualifying plant and machinery and building structures therefore remains important. The announced rate changes do not, by themselves, alter eligibility for the relief or the treatment of non-qualifying construction costs.

Leasing anti-avoidance rules

The government will introduce legislation in Finance Bill 2026–27 to expand the definition of a finance lease for certain lease and leaseback arrangements.

The amendment brings within that definition right-of-use leases that would previously have been finance leases, restoring the intended treatment following changes to accounting standards.

HMRC’s policy paper states that the measure will apply to qualifying expenditure incurred from 28 October 2026 for Corporation Tax and Income Tax purposes, with apportionment where a chargeable period straddles that date. This is a targeted anti-avoidance measure, rather than a broader extension of full expensing to leased assets.

Wider access to advance tax certainty

The Advance Tax Certainty Service launched in July 2026, allowing qualifying major investment projects to obtain binding clarity from HMRC on the application of tax rules before investment decisions are made. The Autumn Budget reduces the qualifying UK expenditure threshold from £1 billion to £300 million over a project’s lifetime. As a result, more projects may now be able to access the service.

The Budget briefing states that the threshold and penalty changes will take effect from 4 November 2026, with procedural amendments expected from 1 April 2027. These dates require confirmation against the implementing provisions. HMRC’s updated guidance already reflects the new £300 million threshold.

Access remains subject to the service’s other eligibility and clearance conditions.

Land Remediation Relief and brownfield development

In the recent HMT update, the government confirmed that it will not proceed with the proposed reforms to Land Remediation Relief (LRR) at this time. This follows the consultation that closed on 21 September 2026.

The government cited the significant cost of the proposals and the need for evidence that those costs would be proportionate to the benefits delivered. The relief itself will remain unchanged. Instead, HMRC will review its guidance with businesses, advisers and other stakeholders. A summary of consultation responses will be published in due course.

Separately, the government has announced a Biodiversity Net Gain exemption for residential brownfield developments on sites up to 1.5 hectares in England. The measure is intended to reduce development costs and support housing delivery. The consultation response and impact assessment will set out the implementation timetable. As a result, businesses should not treat the exemption as immediately available. This is a planning measure, rather than a change to capital allowances or Land Remediation Relief.

What do these changes mean for businesses?

Taken together, these measures provide targeted support for investment rather than a broad increase in tax relief.

Retaining full expensing provides continuity for eligible companies, while the higher first-year allowance could improve the economics of qualifying investment outside the scope of full expensing, including eligible leasing expenditure and investment by unincorporated businesses.

However, slower writing down allowances will defer tax savings on existing main pool balances and expenditure that does not qualify for upfront relief, creating a cashflow headwind for some businesses. The wider economic benefit will depend on whether accelerated relief encourages additional investment, rather than simply changing the timing of deductions for expenditure already planned.

Greater certainty may prove to be equally important. Broader access to advance tax clearance and clearer guidance on predevelopment costs may help investors assess project returns with greater confidence, although improved guidance does not in itself extend eligibility for relief.

The targeted leasing anti-avoidance changes also reinforce the importance of reviewing financing arrangements alongside asset eligibility. For brownfield development, the proposed Biodiversity Net Gain exemption could improve the viability of smaller residential schemes once implemented. However, leaving Land Remediation Relief in its current form means there is no additional tax incentive to offset remediation costs. In our view, the package may help some projects move forward, but its impact on growth will depend on commercial demand, financing conditions and delivery costs as well as tax outcomes.

Businesses should therefore evaluate the measures together at project level, rather than assume that higher upfront allowances will automatically produce a better investment outcome in every case.