First year allowance rises to 50% in the 2026 Budget: what it means for business investment

The Autumn Budget 2026 increased the main rate first year allowance from 40% to 50% for qualifying spending on or after 1 January 2027. For small businesses planning to invest in equipment, it's worth checking which tax reliefs apply to a purchase before assuming it qualifies for the higher rate. Asset finance may also offer a way to spread the cost of equipment while keeping cash available for other business expenses.

In this article, we cover what the Budget changed, why not every asset will qualify and why we're encouraging businesses to combine the relief with asset finance.

What did the Autumn Budget 2026 change for the first year allowance?

In his first Budget, Chancellor John Healey increased the main rate first year allowance from 40% to 50%. The higher rate applies to qualifying spending on or after 1 January 2027, and it's available to companies and unincorporated businesses.

The first year allowance is one of several capital allowances, and the other existing reliefs remain in place. Our guide to capital allowances for UK businesses explains how each relief works and what you could claim. With this change, we believe the UK now has one of the most attractive capital allowance regimes in the world.

Will every asset qualify for the 50% rate?

Not every asset will qualify for the 50% rate. The capital allowances available to a business depend on the asset it's buying, so the increase only applies to qualifying spending. HM Revenue and Customs (HMRC) does not give advance clearance, which means businesses won't get confirmation from HMRC before they buy. For this reason, we're advising businesses to confirm eligibility for their specific purchase with an accountant. Checking this before signing a finance agreement could save a costly surprise at year end.

Why consider combining the relief with asset finance?

The new rate starts in January, when many small businesses are dealing with their tightest cash flow of the year. That makes affordability the biggest barrier to using it.

Nick Richardson, Head of Funding at Capitalise, said:

"A higher first year allowance is good news for businesses that want to invest and take advantage of this particular tax relief, but it only helps if you can afford the purchase in the first place. Most small businesses don't have tens of thousands of pounds sitting idle, especially heading into January, when cash flow is often at its tightest."

Asset finance lets businesses spread the cost of new equipment over its working life while still benefiting from the relief. With hire purchase, for example, the business is usually treated as the owner for tax purposes, so it can claim capital allowances on the full cost from day one while paying in monthly instalments.

What else did the Autumn Budget 2026 announce for businesses?

The first year allowance rise is one of several tax changes in the Budget that affect business owners. Others worth knowing about include:

• The business asset disposal relief threshold falls from £1m to £500,000, which matters for owners planning to sell their business.

• From 6 April 2027, a new founders' relief applies a 10% capital gains tax rate on lifetime gains of up to £10m for founders of high growth innovative companies.

• From 6 April 2027, the value of tax advantaged share options employees can hold doubles from £60,000 to £120,000.

• The trading allowance triples from £1,000 to £3,000 a year.

Our Autumn Budget 2026 overview covers the full set of announcements. For comparison with previous years, you can also read our coverage of the Autumn Budget 2025 and the Autumn Budget 2024, which looked at that year's capital allowances changes.

Pair the first year allowance with asset finance

Our advice is to combine capital allowances with asset finance, so you can claim relief on the full cost of new equipment without tying up your cash. Before you sign a finance agreement, confirm with your accountant that your specific purchase qualifies. Capitalise gives you access to a panel of 130+ lenders, so you can compare asset finance options for the equipment your business needs.