Capital allowances on solar panels for business

The main points

Important: This is general information, not tax advice. Capital allowance rules are detailed and change at Budgets. Always confirm how they apply to your organisation with your accountant before you commit to a purchase.

• Solar panels are special rate expenditure for capital allowances.
• The Annual Investment Allowance (AIA) gives 100% relief on up to £1 million of qualifying spend a year, and can be used on solar panels by companies, sole traders and partnerships of individuals.
• Companies can also claim a 50% first year allowance on new and unused special rate assets, including solar panels.
• Full expensing (100%) and the new 40% first year allowance apply only to main rate assets, so they do not cover solar panels.
• Spend not covered by the AIA or a first year allowance goes into the special rate pool and is relieved at 6% a year.

Why solar panels are special rate

HMRC's Capital Allowances Manual lists solar panels as special rate expenditure, and the GOV.UK guide to rates and pools confirms the special rate pool rate of 6%. The main pool rate fell from 18% to 14% from April 2026, but that does not affect solar.

Annual Investment Allowance

The AIA is £1 million a year. It covers most plant and machinery, including solar panels, and gives 100% relief in the period you incur the cost. Because special rate assets otherwise get only 6% a year, accountants commonly allocate the AIA to solar and other special rate spend first.

Points to watch:

• The £1 million is shared across everything you buy in the year, so other equipment purchases reduce what is left for solar.
• Companies controlled by the same person generally share one AIA.
• The AIA is only available to partnerships where all members are individuals.
• If your accounting period is longer or shorter than a year, the limit is adjusted.

The 50% first year allowance for companies

Companies can claim a 50% first year allowance on new and unused special rate plant and machinery. GOV.UK explains it alongside full expensing. The other half of the cost goes into the special rate pool and is relieved at 6% a year on a reducing balance, normally starting from the following period. This is mainly useful when the AIA has already been used on other spending.

Why full expensing and the 40% allowance do not apply

Full expensing gives companies 100% relief on new main rate plant and machinery. The 40% first year allowance, available for spending from 1 January 2026, also applies only to main rate assets. Solar panels are special rate, so neither applies to them. Be wary of any quote or sales material that says solar qualifies for full expensing.

Sole traders and partnerships

Unincorporated businesses cannot claim full expensing or the 50% first year allowance. They can claim the AIA on solar panels, which in most cases covers the whole cost of a commercial system. Anything above the AIA goes into the special rate pool at 6% a year. Relief is given against income tax rather than corporation tax, so its value depends on your marginal rate.

Landlords, tenants and fixtures

Solar panels fixed to a building are treated as fixtures, and special rules decide who can claim. In general, the person who pays for the panels and has an interest in the land claims the allowances. Points that commonly arise:

• Landlords of commercial property who pay for panels on a let building can usually claim, even though the tenant uses the electricity. Our page for commercial landlords covers the commercial side.
• Tenants who pay for panels on a building they lease can often claim too, depending on the lease.
• Dwellings: allowances are generally not available for plant in a dwelling house, so mixed use buildings need care.
• Buying or selling a building with panels: the buyer and seller usually need to agree the value of fixtures, often through a joint election, or the buyer may lose the right to claim. HMRC sets out the detail in its fixtures guidance.
• PPAs and leases: if a third party owns the panels, it claims the allowances, not you. See asset finance and leasing and power purchase agreements.

Illustrative examples

These examples use the illustrative 100 kWp, £90,000 system from our solar payback guide. Tax rates and your profits will differ, so treat the figures as illustrations only.

Example 1: a company with AIA available

A company spends £90,000 on solar and has not used its AIA elsewhere. It claims the AIA on the full £90,000, reducing taxable profits by £90,000 in that year. At the 25% main rate of corporation tax, that is worth £22,500 in lower tax. A company with lower profits paying less than the main rate would save less.

Example 2: a company that has already used its AIA

The same company has already used its full £1 million AIA on other equipment. It claims the 50% first year allowance: £45,000 in year one, worth £11,250 at 25%. The remaining £45,000 goes into the special rate pool. From the next period it earns 6% a year on a reducing balance: about £2,700 in year two, then a little less each year.

Example 3: a sole trader

A farmer trading as a sole trader spends £90,000 on solar for a dairy unit and has AIA available. The full £90,000 can be deducted from profits, with the value depending on the farmer's income tax rate. If the AIA had already been used, relief would fall to 6% a year: £5,400 in the first year.

Selling the system or the building

If you later sell the panels, or the building they are fixed to, you may need to bring a disposal value into your calculations. Where allowances have already been claimed in full, that can create a balancing charge that adds to taxable profits. Plan this with your accountant before any sale.

Batteries, EV chargers and VAT

Battery storage, EV chargers and associated electrical work may be treated differently from the panels, so ask your accountant to classify each item on the quote. VAT is separate: commercial installations are normally standard rated at 20%, which VAT registered businesses recover in the usual way. See our grants overview for the zero rate for buildings used solely for a relevant charitable purpose.

TODO for the site owner: Re-check the AIA limit, the 50% first year allowance, the 40% first year allowance and the 6% and 14% writing down rates on GOV.UK (gov.uk/capital-allowances and gov.uk/work-out-capital-allowances/rates-and-pools) after each Budget, and update this page if anything changes.

Questions to ask your accountant

1. Is the AIA still available this year after our other purchases?
2. Should we claim the AIA or the 50% first year allowance on the solar?
3. Who holds the relevant interest in the building for the fixtures rules?
4. How should batteries, chargers and electrical works on the quote be classified?
5. What happens to the allowances if we sell the building within a few years?