Election manifestos: Full expensing and capital allowances

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The country is going to the polls on 4 July and a key question businesses are asking political parties is the support they're offering for capital investment. Jeremy Chapman compares the pledges on this important tax relief.

All major parties have now launched their manifestos, with promises on capital allowances buried away in the detail. Both the Labour and Conservative manifestos mention the treatment of capital allowances and first-year allowance incentives to encourage investment in capital expenditure. The Conservatives have also referenced extending their current 'full expensing' policy to deliver wider policy objectives, in this case the delivery of brownfield housing. Albeit, their message is rather cryptic on how this would work in practice.

In general, most businesses look for certainty and a stable framework to operate within and the headline pledges to maintain full expensing will be welcomed. Looking at each of the detailed promises on capital allowances though, as well as what parties haven't mentioned, can help us understand in further depth what any new government will deliver for capital investment.

What does capital investment support look like now?

While businesses can't claim tax relief for depreciation on capital expenditure, they can claim capital allowances. Capital allowances give tax relief for qualifying expenditure incurred on fixed assets for use within a business. Over the years the regime has been consulted on and reformed several times. 

As a result, we now have reliefs for most fixed-asset expenditure types including buildings, plant, and equipment. However, there's no relief available for expenditure on acquiring land.

As an incentive to encourage companies to invest in the post-Covid-19 period, super- deductions were introduced. They provided 130% first year allowance for qualifying plant, machinery, and some fixtures. There was also a lower tier 50% first-year allowance for special-rate pool expenditure, including on heating and ventilation systems, water systems, electrical systems, lifts, and escalators. The other 50% is given by way of 6% writing down allowances in the second and subsequent periods on a reducing balance basis.

Super deductions ended on 31 March 2023 and were replaced by 'full expensing' on a temporary basis, which was subsequently made a permanent relief in Finance Act 2024. The 50% first-year allowance continued as well. However, with the criteria being slightly different for super deductions and full expensing, the 50% relief aligns to the new criteria.

For companies, full expensing allows for a 100% first year offset of qualifying capital expenditure against taxable profits in a period. This relief is limited in scope to companies subject to corporation tax and doesn't include other business types, such as trusts, partnerships, and sole traders. In addition, it isn't available for secondhand assets and assets that are leased to third parties, including intra-group leasing.

Prior to the introduction of super deductions, the UK ranked 30th out of 37 (at the time) OECD countries for the competitiveness of its plant and machinery allowances. Now the UK ranks joint first (for plant and machinery).

Conservative Party

The Conservative Party has included three full expensing promises in their manifesto

1 Maintain permanent full expensing

2 Extend the full expensing policy to leasing, once fiscal conditions allow

3 Extend full expensing to encourage brownfield housing development

The maintained permanent status of full expensing will give companies certainty. However, there's no pledge to extend this first-year allowance to other types of entities, which continues the disparity in treatment between companies and other taxpaying entities. 

The second element of the full expensing is the intention to reform the restriction for companies which lease assets when the fiscal conditions allow. This extension to leased assets has previously been announced and there was a consultation under way which was paused when the Election was called.

Leasing has a wide definition and could comprise simple plant hire, intra-group leasing, or structured finance leasing. Landlords aren't typically caught by this restriction unless they also lease trade equipment or non-standard installations within buildings, such as racking within a warehouse or beds within a hotel.

Whilst the manifesto and the government’s previous ambition has been stated as extending full expensing to leasing, it should be noted that the detail of how this policy could be implemented in practice was still under consultation at the time the election was called.  There remains uncertainty, if the government were to bring in this extension, whether full expensing would be extended to all types of leasing or if it would be limited in its application.

The third promise within the manifesto mentions extending ‘full expensing’ to the delivery of brownfield housing within 20 key inner cities. While the need for more housing is evident, it isn't clear how this proposed extension will work in relation to residential housing. Currently, residential property is mostly excluded from the capital allowances regime, so this could be a significant reform depending on how the legislation defines brownfield housing.


The Labour Party has also confirmed that they'll look to retain the permanent full expensing for corporates and the annual investment allowance (AIA) for small businesses. This will give certainty to businesses that may be deferring capital investment due to the Election.

It should be noted that Labour’s manifesto notes that they will retain the annual investment allowance (AIA) for small businesses. It’s unclear if the reference to small business has been chosen to highlight that the AIA is of particular relevance to the small businesses, given its £1m qualifying capital expenditure threshold.  The alternative would imply Labour are considering some type of restriction to the size of business that could claim the AIA, though we would note this is not a policy Labour has mentioned previously, including when they first announced their policy to retain the AIA in “Labour’s Business Partnership for Growth” published in February 2024.

Unlike the Conservatives, Labour is silent on the potential extension of full expensing to leased assets. Therefore, it isn't clear if this consultation would continue towards implementation under a Labour government.

Perhaps more interestingly, Labour's manifesto says "we'll give firms greater clarity on what qualifies for allowances to improve business investment decisions.” This is something businesses would no doubt welcome, particularly considering recent case law. However, without any detail it's unclear whether this foretells a detailed overhaul of the capital allowances regime or a consolidation and elimination of various pools, or simply further tinkering.

A second consultation into simplification of the capital allowances legislation as a consequence of permanent full expensing is currently paused. As with the Conservatives, Labour don't refer specifically to this consultation. It's likely to continue all the same as it's a tidying up of the various first year allowances, albeit it will be of limited impact to the majority of businesses.

The Liberal Democrats

The Liberal Democrat party manifesto is silent on the future of full expensing and the wider capital allowances regime. Therefore, it's difficult to conclude either way on how a Liberal Democrat government would impact the current capital allowances regime.

The party has confirmed that they would encourage development of existing brownfield sites with financial incentives, however it isn't clear if this will be through the full-expensing regime like the Conservatives or through another mechanism.

Missed opportunities? The pledges parties aren't making

While looking at what has been promised, it's also important to consider what has not. Here are four potential policies that no party has embraced:

1 Additional support or 'super deduction' to incentivise investors to improve the energy efficiency of buildings or indeed for businesses looking to reduce the carbon footprint of construction projects and materials manufacturing

2 Aligning the capital and revenue tax relief for research and development to simplify the tax incentives in this area

3 Incentivising companies with tax losses to invest, ie, the current regime doesn't provide any option to surrender tax losses for a cash payment from HMRC (other than land remediation relief)

4 Aligning AIA with full expensing so that AIA can be removed or extension of AIA or full expensing to excluded entities.

For more insight and guidance, get in touch with Jeremy Chapman.tracking-pixels

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