Annual Investment Allowance (AIA)
UK tax glossary · Last reviewed: April 2026
The Annual Investment Allowance (AIA) allows businesses (sole traders, partnerships, and limited companies) to deduct the full cost of qualifying plant and machinery in the tax year of purchase, up to £1 million. This replaces the need to depreciate the asset over its useful life.
Qualifying assets include machinery, tools, computers, vans, commercial vehicles, and certain fixtures in business premises. Cars do not qualify for AIA; they are written down at 18% or 6% per year through the capital allowances pool.
The £1 million limit is shared between associated businesses and apportioned for short accounting periods. Any expenditure above £1 million goes into the capital allowances pool for 18% or 6% writing-down allowances per year.
Worked example
Sole trader buys equipment for £45,000. AIA: full £45,000 deducted from profits in year of purchase. Tax saved (20% basic rate): £9,000. Without AIA, writing-down allowance at 18%: £8,100 in year one — much less relief up front.
Common questions
Can I use AIA on a second-hand piece of machinery?
Yes. AIA applies to both new and used plant and machinery, as long as it is being used for your business. The only exceptions are assets purchased from a connected party or previously used in a leasing trade.
Does AIA apply to buildings?
No. Buildings and structures are covered by Structures and Buildings Allowance (SBA) at 3% per year, not AIA. However, fixtures within buildings (e.g. heating systems, lighting) can qualify for AIA if they are plant.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.