Capital Allowances on Solar Panels
Reviewed by the Commercial Solar Finance editorial team — independent advisers (we take no installer or lender commissions). Last reviewed: June 2026.
Commercial solar panels qualify for capital allowances — the tax relief that lets UK businesses deduct the cost of plant and machinery from their taxable profit. For most commercial solar projects, the Annual Investment Allowance delivers 100% first-year corporation tax relief on the entire installed cost. This guide explains every capital allowance that applies to solar, how much you can claim, who is eligible, and how the claim interacts with your choice of finance.
Quick answer: can you claim capital allowances on solar panels?
Yes. Solar PV is plant and machinery for tax purposes. The Annual Investment Allowance (AIA) gives 100% first-year relief on the full installed cost, up to £1 million per year — which covers the vast majority of commercial systems outright. Solar is a special-rate asset, so spend above the £1m cap attracts the 50% First Year Allowance, with the balance written down at 6% per year. A £200,000 system therefore generates roughly £50,000 of corporation tax saving in year one at the 25% rate.
The three capital allowances that apply to commercial solar
UK tax law provides three distinct capital allowance routes relevant to a commercial solar installation. Most businesses only need the first — the AIA — but understanding all three matters for large projects and for the structural building works that accompany a rooftop or ground-mount array.
| Capital allowance | Rate | Annual cap | Applies to | When it matters for solar |
|---|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% in year one | £1,000,000 per year | Plant & machinery (incl. special-rate solar PV) | The default for almost all commercial solar — full relief on systems up to £1m |
| 50% First Year Allowance (FYA / full expensing special rate) | 50% in year one | No cap | Special-rate plant & machinery | Spend on solar PV above the £1m AIA limit |
| Structures & Buildings Allowance (SBA) | 3% per year (flat) | No cap | Structural and building works | Ground-mount frames, new roof structures, civil works — not the panels themselves |
Why solar panels are a "special rate" asset — and why it doesn't cost you
HMRC classifies solar PV as an integral feature of a building, which places it in the special rate pool. Special-rate assets normally attract only a 6% writing-down allowance per year — far slower than the 18% main rate. This sounds disadvantageous, but it almost never bites, because the Annual Investment Allowance overrides the pool rate: AIA gives 100% first-year relief on special-rate assets too, up to £1m per year.
The special-rate classification only matters above the £1m AIA cap. There, solar qualifies for the 50% First Year Allowance (the special-rate arm of full expensing) rather than the 100% main-rate full expensing available to ordinary plant. For the overwhelming majority of commercial solar projects — which cost between £30,000 and £900,000 — the entire cost falls within AIA and attracts 100% first-year relief regardless of the special-rate label.
Worked example: capital allowances on a £200,000 solar system
A profitable limited company installs a 235kWp rooftop solar system for £200,000 and owns it outright (cash purchase, green loan, or hire purchase). The company pays corporation tax at the main 25% rate.
| Step | Calculation | Amount |
|---|---|---|
| Installed cost (qualifying expenditure) | Full system cost | £200,000 |
| Annual Investment Allowance claimed | 100% of cost (within £1m cap) | £200,000 |
| Corporation tax saving (year one) | £200,000 × 25% | £50,000 |
| Effective net cost of system after tax relief | £200,000 – £50,000 | £150,000 |
| SEG export income + energy saving (year one) | Typical 235kWp commercial site | £30,000–£42,000 |
The £50,000 of first-year tax relief is the single largest financial lever in the entire commercial solar business case. It is also the reason ownership structures (cash, green loan, hire purchase) usually beat leasing and PPA for profitable businesses: when you lease or sign a PPA, the lessor or developer claims this £50,000, not you.
Who claims the capital allowances under each finance route?
The single most important rule: only the legal owner of the asset can claim capital allowances. Your finance structure therefore decides whether you or the finance provider captures the relief.
| Finance route | Who owns the system | Who claims capital allowances | Your AIA benefit |
|---|---|---|---|
| Cash / capital purchase | You | You | Full 100% AIA |
| Green loan | You (from day one) | You | Full 100% AIA |
| Hire purchase | You (on final payment) | You (from contract start, once in use) | Full 100% AIA |
| Finance lease | Lessor | Lessor | None — reflected in lower rental |
| Operating lease | Lessor | Lessor | None — reflected in lower rental |
| Power Purchase Agreement (PPA) | Developer | Developer | None — reflected in discounted kWh rate |
Key planning point for profitable businesses
If your business has taxable profit to shelter, an ownership route (cash, green loan, or hire purchase) lets you keep the Annual Investment Allowance — worth 25% of the system cost in year-one corporation tax relief. On a £500,000 system that is £125,000. Leasing and PPA give this relief away to the finance provider. Only choose a lease or PPA when zero capital, off-balance-sheet treatment, or simplicity outweighs the lost tax relief — or when your business is not currently profit-making and cannot use the allowance.
How to claim capital allowances on solar panels
Capital allowances on solar: frequently asked questions
Can you claim capital allowances on solar panels?
Yes. Solar PV qualifies as plant and machinery, so a UK business that owns the system can claim the Annual Investment Allowance — 100% first-year corporation tax relief on the full installed cost, up to £1m per year. Spend above the cap attracts the 50% First Year Allowance with the balance at 6% per year. You must own the asset to claim: buy outright, use a green loan, or use hire purchase.
Are solar panels plant and machinery or a building structure?
The solar PV panels, inverters, cabling and mounting system are plant and machinery (special-rate pool) and qualify for AIA/FYA. Only genuinely structural elements — a new roof, ground-mount foundations, or civil works — fall under the Structures and Buildings Allowance at 3% per year. On a typical rooftop installation, almost the entire cost is plant and machinery, so AIA covers it.
Can a sole trader or partnership claim capital allowances on solar?
Yes. Capital allowances apply to income tax payers (sole traders, partnerships) as well as corporation tax payers. A sole trader claims the AIA against trading profit on the self-assessment return. The relief reduces income tax and Class 4 National Insurance. The same ownership rule applies — you must own the system, not lease it.
What if my business isn't making a profit yet?
If the AIA claim creates or increases a trading loss, you can carry the loss back one year (or forward indefinitely) to obtain relief against other profits. For groups, the allowance can shelter group profits. If your business genuinely cannot use the relief, a finance lease or PPA — where the provider claims the allowance and passes the benefit through a lower rate — may be more efficient than buying outright.
Is commercial solar tax deductible?
Yes — commercial solar is tax deductible in two distinct ways, and businesses frequently confuse them. The capital cost of the system is relieved through capital allowances (AIA at 100% in year one, as set out above). Separately, the ongoing running costs — operations and maintenance contracts, monitoring, insurance, and any loan or lease interest — are deductible as normal revenue business expenses against trading profit.
This dual deductibility is why the after-tax cost of commercial solar is substantially lower than the headline price. A profitable company buying a £200,000 system claims £50,000 of capital allowance relief in year one, then deducts maintenance and any financing interest annually thereafter. If the system is financed with a green loan, the loan interest is also deductible — so the business claims the full AIA on the asset and writes off the interest on the borrowing used to buy it. Leasing and PPA structures are deductible as operating expenses but do not give you the capital allowance, as the finance provider owns the asset.
There is no separate "solar tax credit" in the UK comparable to the United States Investment Tax Credit. UK relief comes through the capital allowances system — principally the AIA — plus the deductibility of running costs and the Climate Change Levy exemption on self-generated electricity. Combined, these reliefs typically recover 25–30% of the lifetime cost of a commercial solar system through the tax system.
Explore each capital allowance and tax relief
- Annual Investment Allowance (AIA): 100% first-year relief
- 50% First Year Allowance: spend above the AIA cap
- Commercial solar tax savings: AIA, FYA & CCL combined
- All commercial solar incentives and tax reliefs
- Green loans: borrow and still claim 100% AIA
- Hire purchase: spread cost, keep the allowance
- Public sector? PSDS grants instead of allowances
- All six commercial solar financing routes
What the Autumn Budget 2025 changed for solar capital allowances
The Autumn Budget 2025 made two capital-allowance changes that take effect in 2026. Both target the main rate pool — and because commercial solar PV is a special-rate asset, the headline changes largely do not apply to solar. This is widely misunderstood, so here is exactly what changes and what does not.
| Autumn Budget 2025 change | What it does | Effect on commercial solar |
|---|---|---|
| New 40% First-Year Allowance (from 1 Jan 2026) | 40% first-year relief on main-rate plant & machinery, aimed at assets that miss other FYAs (e.g. assets bought for leasing, and unincorporated businesses). Second-hand assets and cars excluded. | Does NOT apply to solar PV — solar is special-rate, not main-rate. A common 2026 misconception. |
| Main-pool WDA cut 18% → 14% (from 1/6 Apr 2026) | Reduces the writing-down allowance on the main pool from 18% to 14% per year (a hybrid rate applies to periods straddling the date). | Does NOT affect solar — solar sits in the 6% special-rate pool, which is unchanged. |
| Annual Investment Allowance (AIA) | Unchanged: 100% first-year relief up to £1,000,000 per year, available on special-rate assets too. | Unchanged and remains the dominant relief for commercial solar — covers most systems outright. |
The bottom line for solar after the 2025 Budget
Nothing material changed for the way most businesses fund commercial solar. The Annual Investment Allowance still delivers 100% first-year corporation-tax relief on the full system cost up to £1m, which covers the overwhelming majority of installations. The new 40% FYA and the 18%→14% WDA cut are main-rate measures that bypass special-rate solar. Where they can matter is at the margin: above the £1m AIA cap, solar still uses the 50% special-rate first-year allowance with the residue in the 6% pool — the 40% main-rate FYA is not an alternative for that excess.
AIA worked-savings ladder: corporation-tax relief by system size
For a profitable company at the 25% main corporation-tax rate, claiming the AIA in year one:
| System size | Typical install cost | AIA claimed (100%) | CT saved @ 25% | Net cost after relief |
|---|---|---|---|---|
| 50kWp | £55,000 | £55,000 | £13,750 | £41,250 |
| 100kWp | £97,500 | £97,500 | £24,375 | £73,125 |
| 250kWp | £212,500 | £212,500 | £53,125 | £159,375 |
| 500kWp | £425,000 | £425,000 | £106,250 | £318,750 |
Worked example above the £1m AIA cap
A business installs a £1.4m solar system in one accounting period. It claims the AIA on the first £1,000,000 (100% = £1,000,000 relief). The remaining £400,000 is special-rate expenditure: it qualifies for the 50% first-year allowance (£200,000 relief in year one), with the residual £200,000 added to the special-rate pool and written down at 6% per year. Total year-one allowances: £1,200,000 of the £1.4m, i.e. £300,000 of corporation-tax saved at 25% in year one. The new 40% main-rate FYA is not available on that £400,000 excess because solar is special-rate.
Capital allowance treatment verified against GOV.UK guidance and the Autumn Budget 2025 measures (new 40% first-year allowance; main-rate WDA reduction to 14%). Solar PV is special-rate plant & machinery (HMRC CA22335). This is general information, not tax advice — confirm your position with your accountant.
Wondering about the 2026 change? See whether the new 40% first-year allowance applies to solar (it does not — it is main-rate only).
Landlord or tenant? Who claims the allowances on a let building
The finance-route table above assumes you own and occupy the building. Put the roof on a let commercial property and a second question decides who captures the relief – and it is not simply who paid. Once installed, solar panels, inverters and mounting bolt to the building and become fixtures: in property law they belong to the freeholder even if a tenant funded them. The fixtures rules in the Capital Allowances Act 2001 override that, treating whoever incurs the expenditure and holds a relevant interest (a freehold or a qualifying lease), and uses the system in a qualifying activity – a trade or a UK property rental business – as owner of the solar fixture for allowances.
| Scenario | Who incurs the cost | Who claims AIA / FYA | Key condition |
|---|---|---|---|
| Owner-occupier, own building | You | You | System used in your own trade |
| Landlord installs on a let building | Landlord | Landlord, against the property rental business | Letting is the qualifying activity; roof rent / export income supports it |
| Tenant installs at own cost | Tenant | Tenant, via the fixtures rules | Tenant holds a qualifying lease and uses the system in its trade |
| Landlord contributes to a tenant's install | Both | Split under the contribution-allowance rules | Each pound is claimed once – never by both parties |
| Service-charge / managed estate | Landlord funds, recharges tenants | Landlord (who incurs it) | The recharge is rental income, not a second claim |
One pound, one claimant
HMRC will not let a landlord and a tenant both claim allowances on the same expenditure; a duplicate claim invites disallowance and penalties. Agree who claims – and for how much – in the agreement for lease before the panels go up, and keep the apportionment on file. For multi-let estates, model this across the whole property portfolio so the AIA lands where it can actually be used.
Selling the building later: fixtures and the section 198 election
Because solar is a fixture, the allowances travel with the building, not with you. When you sell a commercial property with a system installed, capital allowances law requires the buyer and seller to agree – in a signed section 198 CAA 2001 election – the value passed across for the fixtures. Handle it carelessly and the relief can be lost permanently, for you and every future owner.
| Requirement | What it means for a solar-equipped building |
|---|---|
| Pooling requirement | The seller must have pooled the solar expenditure (claimed AIA / FYA or otherwise brought it into a pool) before any allowances can pass to the buyer |
| Fixed-value requirement | Buyer and seller jointly sign a section 198 election fixing the fixtures' value; that figure is at once the seller's disposal value and the buyer's acquisition cost |
| Permitted amount | At least £1 and no more than the seller's original qualifying expenditure – and never above the sale price of the property |
| Two-year deadline | The election must reach HMRC within two years of completion; miss it and the value is no longer fixed by agreement |
| No valid election | The buyer's qualifying expenditure is treated as nil – no allowances for them or any subsequent owner, ever |
The election figure is a negotiation, not a formality
A seller who took 100% AIA has written the system down to nil, so a high election value triggers a balancing charge that claws relief back – they push for a low figure, as little as £1. A buyer wants a high figure to maximise their own future allowances. The number you agree, and getting the election signed inside the two-year window, deserves the same attention as the headline price. Keep ownership by financing rather than selling – a green loan or hire purchase – and none of this arises, because the fixtures never change hands.
Landlord, tenant & sale: quick answers
Do solar panels count as fixtures when I sell the building?
Yes. Panels, inverters, mounting and cabling become fixtures in law once installed, so the section 198 fixtures rules apply on any sale of the property. The allowances stay with the building unless a valid election passes an agreed value to the buyer.
Can a tenant claim if the landlord owns the roof?
Usually yes, where the tenant incurs the cost, holds a qualifying lease (a relevant interest) and uses the system in its trade. The fixtures rules treat the tenant as owner of the solar fixture for allowance purposes, even though property law says the panels belong to the freeholder.
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