If you’ve recently purchased a commercial property or undertaken a fit-out or refurbishment, chances are you’ve heard of the Annual Investment Allowance (AIA). But what exactly is it, and how can it benefit you as a commercial property buyer?

In this guide, we’ll explain the AIA in simple terms, show how it applies to commercial property purchases and upgrades, and flag key planning opportunities (and mistakes to avoid). Whether you’re a seasoned investor or acquiring your first commercial property through a business, this post will help you understand how to make the most of one of the UK’s most valuable tax incentives.

What is the Annual Investment Allowance (AIA)?

The Annual Investment Allowance is a form of capital allowances that lets UK businesses deduct the full value of qualifying capital expenditure from their profits before tax, in the year the cost is incurred.

Unlike standard capital allowances, which spread the tax relief over several years, AIA provides 100% first-year relief, which can create significant tax savings and boost cash flow quickly.

🔹 Key Facts:

• The AIA applies to qualifying plant and machinery (more on this below).

• The AIA limit is £1 million per year (as of 1 January 2019 and now made permanent).

• It is per business, not per asset, and resets annually based on your accounting period.

• AIA is claimed through your corporation tax return (or income tax return if you’re a sole trader).

How Does AIA Apply to Commercial Property Buyers?

If you buy a commercial property through a limited company (as most investors do), you can’t claim AIA on the cost of the building itself, since land and buildings are excluded.

However, you can claim AIA on the embedded fixtures and fittings within the building,  if they qualify as plant and machinery. This includes things like:

• Heating and air conditioning systems

• Electrical wiring and lighting

• Alarm and fire safety systems

• Fitted kitchens, toilets, and washrooms

• Data cabling and telecom systems

• Lifts, escalators, and built-in equipment

This means that a significant portion of a commercial property’s value may qualify for AIA,  especially in newer or recently refurbished buildings.

📌 Example:
A company purchases a £2 million office building. After a specialist capital allowances survey, £400,000 of the purchase price is attributed to qualifying plant and machinery. If the company hasn’t used its AIA elsewhere, the full £400,000 may be written off against profits in the year of purchase, potentially saving up to £100,000 in corporation tax (based on a 25% rate).

How Does AIA Differ From Other Capital Allowances?

AIA is just one type of capital allowance. Here’s how it compares to others:

If you exceed the £1m AIA cap or have non-qualifying assets (like structural walls), you may still be able to claim other allowances like the SBA.

When Can You Use AIA?

To benefit from AIA, timing is key. AIA applies to the accounting period in which the expenditure is incurred, not when it’s paid for or when you sign contracts.

This makes your company year-end a crucial planning window.

📌 Example: If your business has a year-end of 30 September, any qualifying purchases made before this date count toward this year’s AIA. Purchases made after 1 October fall into the next financial year’s allowance.

Also, if you have a shortened or extended accounting period, your AIA limit will be adjusted proportionately.

Can You Claim AIA on Refurbishments and Fit-Outs?

Absolutely, and this is where many commercial property owners miss out.

If you’ve spent money renovating or fitting out a newly acquired or existing property, many of those costs qualify as plant and machinery. But contractors and general accountants don’t always break down invoices in a way that maximises AIA claims, or have the specialist surveying expertise needed to assess expenditure.

That’s where a capital allowances specialist comes in. We go line-by-line through your spend, categorise every eligible item, and build a claim to be included in your company’s tax return.

Common Mistakes to Avoid

Here are some common pitfalls we see commercial property buyers make:

1. Assuming AIA doesn’t apply to property purchases – It can, but only to fixtures, not the building shell.

2. Relying on your accountant to identify allowances – Most can’t carry out the forensic analysis and surveys required.

3. Missing the AIA window – Timing matters. If you miss your year-end, you may delay the relief or lose it.

4. Not structuring purchases efficiently – Contract wording and price apportionment can affect what’s claimable.

5. Overlooking smaller projects – Even modest fit-outs and upgrades can yield valuable AIA claims.

AIA Is a Powerful Planning Tool, If You Use It Right

For the commercial property buyer, the Annual Investment Allowance can offer tens or even hundreds of thousands in tax savings, but only if it’s identified and claimed correctly.

Whether you’re buying your first property, completing a refurbishment, or preparing for year-end accounts, understanding how AIA fits into your wider tax strategy is key to protecting your bottom line.

📩 Need Expert Help?

At CPA Tax, we work with commercial property buyers and their accountants to unlock capital allowances, including AIA, with no upfront cost and no hassle.

📞 Let’s talk, and make sure you’re claiming everything you’re entitled to.
🔗 Visit cpatax.co.uk or contact one of our specialists today: