Capital allowances on solar panels: what UK businesses can claim in 2026

Capital allowances on solar panels: the short answer

Claiming capital allowances on solar panels means following the rules for special-rate plant, because that is how the law classifies them. For many businesses the result is still a full write-off in year one: the Annual Investment Allowance (AIA) gives 100% relief on up to £1m of plant and machinery a year, and it can be used against special-rate spending. Above £1m, a company can claim a 50% first-year allowance on new, unused equipment and write the rest down at 6% a year. A sole trader or partnership has no 50% allowance, so anything above its AIA goes straight into the 6% pool. Capital allowances are the largest relief but not the only one: solar panel tax relief also covers VAT, business rates and the finance routes.

The relief solar cannot use is full expensing. HMRC's capital allowances helpsheet HS252 says companies "cannot claim full expensing for special rate assets" and names solar panels among them. The 40% first-year allowance that started on 1 January 2026 does not apply to solar either, because it is limited to main-rate plant.

The rest of this guide covers what decides the figure you actually get: who can claim, how the £1m is shared, what the relief is worth at different system sizes, how the funding route changes who claims, the fixtures rules for tenants and landlords, what happens when the system is sold, and how to put the claim on your return. It describes the rules as they stand in September 2026. It is general information rather than advice on your own tax position, so confirm the detail with your accountant before you rely on it.

Why solar panels are special-rate plant

Section 104A(1)(g) of the Capital Allowances Act 2001 makes expenditure on the provision of solar panels special rate expenditure. The rule has applied since 1 April 2012 for corporation tax and 6 April 2012 for income tax. HMRC's manual (CA22335) explains that the designation was made for clarity: before then, panels were generally treated as special rate anyway, as integral features of a building or as long-life assets. The wiring that distributes power generated within a building is special-rate in its own right too, because HMRC treats a building's electrical system, including power generated inside it, as an integral feature (CA22330).

The label matters because of the pool rates. Any cost you do not relieve up front goes into the special rate pool, which earns a writing-down allowance of 6% a year on the reducing balance. If the system is leased, the lessor generally claims these allowances; how a lease changes who claims the allowances. The main pool, where most machinery goes, earns 14% from April 2026 (18% before). The Budget 2025 policy paper that cut the main rate states that it does not change the special rate pool's 6%. Special-rate status also keeps solar out of the reliefs built for main-rate plant: full expensing, the 40% first-year allowance and, in 2021 to 2023, the super-deduction.

The Annual Investment Allowance: 100% relief up to £1m

The AIA lets you deduct the full cost of qualifying plant and machinery from your profits for the period in which you incur it, up to £1m a year. The £1m limit was made permanent for expenditure from 1 April 2023. GOV.UK's guidance on first-year allowances says special-rate plant "may qualify for the 100% annual investment allowance", and HMRC's manual confirms the AIA can be claimed on special rate expenditure. If the solar costs less than the AIA you have left for the period, the whole system is relieved in year one and the special-rate label costs you nothing at that stage. The Annual Investment Allowance guide covers the allowance beyond solar.

Who can claim it

Companies, sole traders and partnerships whose members are all individuals (including LLPs made up only of individuals) can claim the AIA. A partnership with a company as a member cannot, and neither can a trust. The allowance is not given for expenditure in the accounting period in which a business permanently stops trading, and it is scaled in proportion when the period is not 12 months long, so a nine-month accounting period carries a limit of £750,000.

One £1m between related businesses

The £1m belongs to the group, not to each company. Companies in a group share a single AIA, and so do companies under common control that are "related", which broadly means they share premises or earn more than half their turnover from the same top-level industry classification. The companies can divide the allowance however they like, but the total stays at £1m. The same premises and activities tests decide whether two unincorporated businesses controlled by the same person share one AIA. Before assuming the solar is fully covered, check how much of the £1m the rest of the group has already used in the period.

Which period the claim falls in

The AIA is given for the chargeable period in which the expenditure is incurred, and only if you own the equipment at some point in that period. Expenditure is generally incurred when there is an unconditional obligation to pay; if payment is not due until more than four months after that, it is incurred on the due date. For panels fixed to a building, the fixtures rules treat you as the owner from the time they become fixtures, which in practice means once they are installed. Unused AIA cannot be carried forward, so if a deposit falls in one accounting period and the installation in the next, ask your accountant how the timing works before you pay.

What the claim can include

The claim covers the equipment and the cost of installing it: panels, inverters, the mounting system, cabling and the installation work directly attributable to the plant. Alterations to an existing building that are incidental to installing plant are treated as part of the plant (CAA 2001 s.25). Repairs are different. A repair to the roof is normally claimed as a business expense, while a new roof covering or a structural frame is part of the building or a structure rather than plant, and may qualify only for the 3% structures and buildings allowance. Leave VAT out of the claim if you are VAT-registered and can reclaim it; if you cannot, the VAT you bear is part of the cost.

Batteries are worth settling early. Section 104A names solar panels, not batteries, and this guide found no HMRC guidance placing a battery installed alongside an array in either pool. Inside the AIA the answer makes no difference in year one; above £1m it can, so ask for the battery to be priced as its own line and agree its treatment with your accountant.

Put the AIA against the solar first

If a company also buys main-rate equipment in the same period, the way it uses the AIA changes the result. HMRC's manual says the AIA can be allocated against any type of plant and machinery expenditure in any way the taxpayer chooses, and expects it to be put against the spending that would otherwise get the lowest rate. Solar is that spending. Take a company that spends £1,000,000 on solar and £500,000 on new main-rate machinery in one year. With the AIA against the solar and full expensing claimed on the machinery, which is main-rate and qualifies, the whole £1,500,000 is relieved in year one. With the AIA against the machinery instead, £500,000 of the solar is left with the 50% allowance, which means £250,000 less relief in year one, worth £62,500 of corporation tax at 25%.

Above £1m: the 50% first-year allowance, then 6%

Once the AIA is used up, a company within the charge to corporation tax can claim a 50% first-year allowance on special-rate expenditure incurred from 1 April 2023. The equipment must be unused and not second-hand. The allowance is not available for a car, for a gift, for plant bought to lease to someone else (unless it is background plant or machinery within a building) or for expenditure in the accounting period in which the business ends. The legislation (CAA 2001 s.45S) has no end date, and you can claim the allowance on all or part of the qualifying cost. The 50% first-year allowance for special-rate plant page sets out the conditions in full.

The half the allowance does not cover is not written down straight away. GOV.UK's guidance is to add it to the special rate pool in the following accounting period, and 6% writing-down allowances run from then. Sole traders and partnerships cannot claim the 50% allowance at all: their expenditure above the AIA goes into the special rate pool in the same period and earns 6% a year from the start.

One narrow exception applies to companies. New plant for use primarily in a Freeport or Investment Zone special tax site can get a 100% first-year allowance on expenditure incurred up to the site's sunset date: 30 September 2031 for English freeports, and 30 September 2034 for Scottish and Welsh freeports and all investment zones. The statutory rate table sets that allowance at 100% with no special-rate reduction, so a qualifying array on a special tax site can be relieved in full beyond the AIA. It also carries a condition that the plant stays primarily in use on the site for five years, so check the site maps and that condition first.

Full expensing and the 40% allowance are main-rate only

These two reliefs account for most of the confusion about solar and tax, so it pays to be precise. Full expensing lets a company deduct 100% of the cost of new main-rate plant bought from 1 April 2023; special-rate plant gets the 50% allowance instead. The 40% first-year allowance, available from 1 January 2026 to companies and unincorporated businesses and, unlike full expensing, for assets bought for leasing, requires the plant to "qualify for the main rate of writing down allowance". HMRC's manual says in terms that special rate expenditure does not qualify for the 40% allowance.

Full expensing does not apply to solar panels, then, and a forecast that assumes it will overstate the first-year relief on any spending above the AIA. Below £1m the AIA reaches the same 100% result by a different route, which is why the error tends to surface only on larger projects or in groups that have already used their AIA elsewhere.

What capital allowances on solar panels are worth: illustrative figures

The table applies the rules above to four system sizes bought by a company, and to one bought by an unincorporated business. The tax saved is the allowance multiplied by the rate of tax it shelters.

Illustrative only. Company rows assume a 12-month accounting period, the full £1m AIA available (not shared with group or related companies), new and unused equipment, costs excluding reclaimable VAT and profits taxed at the 25% main rate. £1,500,000 company row: £1,000,000 AIA plus 50% of £500,000 (£250,000) gives £1,250,000 in year one; the other £250,000 enters the special rate pool in the following period, giving 6% of £250,000 (£15,000) in year two. Unincorporated row: £1,000,000 AIA, then £500,000 pooled in the same period at 6% (£30,000), leaving £470,000.

Three things move these numbers. The first is the rate of tax saved. A company with profits of £50,000 or less pays the 19% small profits rate, so each £1 of allowance saves 19p rather than 25p, and between £50,000 and £250,000 marginal relief tapers the rate, so the value depends on where the allowance takes your profits. Both limits are divided between associated companies and reduced for short accounting periods. The second is that a sole trader's allowance saves income tax at their own marginal rates, which change as a large deduction pulls profit down through the bands, so no single percentage applies. The third is that an allowance bigger than your profit is not wasted: it creates or increases a loss, or you can claim less than the maximum and keep the balance in the pool for later years.

To see the relief alongside the monthly cost of each way of paying, run your own figures through the finance calculator.

How the funding route decides who claims

Capital allowances go to the person treated as owning the equipment, so the way you pay for solar decides whether the allowances are yours at all.

Cash or a business loan

If you buy the system outright or with a business solar loan, you own it and you claim, exactly as described above. The allowance is based on the cost of the equipment, not on the borrowing: loan interest is deducted separately as a finance cost, and repaying the capital gives no further relief.

Hire purchase

For ordinary movable kit, hire purchase works neatly for tax. CAA 2001 s.67 treats the hirer as the owner from the start, and GOV.UK says that once you start using the item you can claim for all the payments you will make under the contract, though not the interest. Roof-mounted solar needs a closer look. HMRC lists solar panels among the items normally regarded as fixtures, and its manual (CA23320) states that the hire purchase legislation does not apply to an asset that is a fixture. Ownership then comes from the fixtures rules: a business that incurs the capital cost for its own trade and holds an interest in the building, as freeholder or tenant, is treated as the owner of the fixture (s.176). What falls away is the s.67 rule that treats every future instalment as spent at the outset, so agree with your accountant when the capital element of an HP-funded array counts as incurred before you plan on a full year-one AIA. HP interest is an allowable finance cost either way.

Operating lease or power purchase agreement

Under an operating lease the funder owns the equipment, so the allowances are the funder's and you deduct the lease payments as a business expense. Where leased panels are fixed to your building and the funder has no interest in the land, it can be treated as their owner only if you and it make a joint election under s.177, which is not available between connected parties, so the lease paperwork may include one for you to sign. Under a power purchase agreement you do not lease the equipment at all: the funder installs, owns and runs it and sells you the electricity. Any capital allowances are the funder's, and what you pay for the power is an ordinary running cost.

Finance leases and long funding leases

Normally a lease leaves the allowances with the lessor. The exception is a long funding lease: broadly, a lease that works as financing (a finance lease, or some operating leases) with a term of more than seven years. The position then reverses. The lessee is treated as owning the equipment and claims the allowances, the lessor gets none, and in return only part of each rental is deductible. A lease of seven years or less is a short lease and falls outside these rules. Which side of the line an agreement sits on is a technical test, so ask the funder how its lease is treated before comparing it with a loan or HP.

Sale and finance leaseback

Selling an installed system to a funder and leasing it back on a finance lease releases cash from panels you already own. For tax, the lease in a sale and finance leaseback is a long funding lease whatever its length, so you are treated as still owning the equipment and keep claiming. Two limits apply: no AIA or first-year allowance is available on the leaseback, and the expenditure you are treated as incurring under it is capped at the disposal value you bring into account on the sale. Rentals are deductible only to the extent of the finance charge, not in full.

Tenants, landlords and buildings that change hands

HMRC lists solar panels, alongside fitted kitchens and EV charging points, among the items it will normally regard as fixtures. The fixtures rules in Chapter 14 of the 2001 Act then decide who is treated as owning them for capital allowances, whatever the property law says.

• Tenant pays: a tenant that pays for panels for its own trade can claim, because a lease is an interest in land and the person who incurs the expenditure while holding an interest in the land is treated as the owner (s.176). The property-law distinction between tenant's and landlord's fixtures does not matter here. What the lease allows does matter in practice: green lease clauses often set out who may install panels and who pays.
• Landlord pays: a commercial landlord that pays can claim through its property business, and the AIA is available to it. First-year allowances are generally excluded for plant in let property, with an exception for background plant or machinery, so a landlord spending above its AIA should check how the 50% allowance applies.
• Equipment lessor pays: a third party that leases panels fixed to your building, and has no interest in the land, needs a joint election with you under s.177. For corporation tax it must be made within two years of the end of the period in which the expenditure was incurred.
• Residential lets: plant or machinery for use in a dwelling-house is not qualifying expenditure for a property business (s.35). Landlords of residential property can claim only for items used in the communal parts of a building with several residential units.
• Buying or selling a building: a buyer can usually claim on fixtures only if the seller had pooled its expenditure on them and the two agree their value, normally through a joint election under s.198 made within two years of the purchase. The value fixed cannot exceed the seller's original qualifying cost or the actual price. If the value is not fixed in time, the buyer's claim on those fixtures can be nil.

Selling or scrapping the system later

Allowances given up front can be clawed back when the system leaves the business. If you sell it, the sale proceeds are brought into account as a disposal value, capped at what you originally spent. Where the AIA covered the whole cost and the pool has nothing left in it, the proceeds are taxed as a balancing charge. If the system is destroyed, the insurance or compensation you receive is the disposal value.

A company that claimed the 50% first-year allowance faces an extra rule. According to HMRC's manual (CA23174AE), a balancing charge arises on the disposal itself, calculated as a proportion of the disposal value: where the 50% allowance covered the whole cost, the charge is half the proceeds, and the other half is deducted from the special rate pool, which can create a further charge if the pool falls below nil. HMRC's own example in HS252 runs: £100,000 spent, £50,000 claimed in year one, the asset sold for £80,000 in year three, and a £40,000 balancing charge in that year. Where the 50% allowance covered only part of the cost, the proportion charged is smaller.

Scrapping an array early does not release its unrelieved cost. Special-rate items cannot go into a short-life asset pool, and a main or special rate pool produces a balancing allowance only when the business ceases, so whatever is left keeps being written down at 6% a year. Because panels are fixtures, they normally pass with the building when you sell it, which brings in the fixtures election described above.

Reliefs that no longer exist

Two reliefs still turn up in older quotes and articles, so it helps to know when they ended.

• Enhanced Capital Allowances (the Energy Technology List). The 100% first-year allowances for energy-saving and environmentally beneficial plant, which were claimed by reference to the Energy Technology List, ended in April 2020. HMRC's manual records them as repealed from 1 April 2020 for corporation tax and 6 April 2020 for income tax, and a product's listing no longer brings any allowance.
• The super-deduction and the 50% special rate allowance. For expenditure from 1 April 2021 to 31 March 2023, companies could claim the 130% super-deduction on main-rate plant or a temporary 50% special rate allowance on special-rate plant. Both ended on 31 March 2023. Solar was never eligible for the super-deduction, and the permanent 50% first-year allowance took over from the temporary one on 1 April 2023.

Other reliefs that change the sums

• VAT. A business installation is normally charged at the 20% standard rate, because the 0% rate for energy-saving materials, which runs to 31 March 2027, covers residential accommodation and buildings used solely for a relevant charitable purpose. A VAT-registered business normally reclaims the VAT, although a partly exempt business may not recover all of it. See reclaiming VAT on commercial solar.
• Business rates. Renewable generation plant, including photovoltaics, is left out of rateable value in England from 1 April 2022, in Scotland from 1 April 2023 and in Wales from 1 April 2024, in each case until 31 March 2035. It is separate from capital allowances; the business rates exclusion page covers what it does and does not take out of the valuation.
• Export income. Payments for the electricity you export are taxable business income. HMRC's manual treats an export tariff received in a business capacity as a business receipt on normal principles, and the income tax exemption for microgeneration covers only individuals generating at their own home. The Smart Export Guarantee page explains how export payments work.

How to claim, and the records to keep

There is no application and no pre-approval. You claim on your tax return for the period in which the expenditure is incurred.

• Companies claim on the Company Tax Return (CT600) and include a capital allowances computation. The AIA goes in box 690, the 50% special-rate first-year allowance in box 693 (with any later balancing charge in box 694) and special rate pool allowances and charges in boxes 695 and 700. Box 770 records expenditure on solar panels and other special-rate items, including any covered by the AIA but not spending on which a first-year allowance is claimed; that goes in box 760, with the part on which the 50% allowance is claimed also shown in box 773.
• Sole traders using traditional accounting claim on the self-employment pages: on the 2025 to 2026 SA103F, box 49 is the AIA and box 51 is the 6% writing-down allowance, which HMRC's notes say covers solar panels. On the cash basis, now the standard method for sole traders and partnerships without corporate partners, capital allowances are available only on cars and equipment is claimed as an expense instead. The cash basis denies a deduction for an asset that is not expected to wear out or lose 90% of its value within 20 years (ITTOIA 2005 s.33A), so settle how a long-life array is treated before you buy, and consider whether traditional accounting suits that year.

Keep the records that support the claim and any later sale:

• an itemised contract and invoice separating the solar plant (panels, inverters, mounting, cabling and installation) from roof repairs, structural work, batteries and any EV charging points;
• the contract date, payment terms and payment dates, which fix when the expenditure was incurred;
• the installation and commissioning dates, and the MCS certificate where the installation has one;
• finance agreements, and any s.177 or s.198 elections;
• a note of how the AIA was shared across group or related companies, and the special rate pool balance carried forward.

When you are ready to test the figures against a real design and price for your building, request a costed quote; any enquiry gets a reply by email.