Capital allowances on solar panels and batteries

Q: What mistakes come up most often?

Putting panels in the main pool. Any balance not covered by the AIA or 50% allowance goes into the special rate pool at 6%. Claiming full expensing or the 40% allowance on panels. Neither applies to special rate expenditure. Residential landlords claiming the AIA. Section 35 removes the expenditure from qualifying expenditure, so no allowance of any kind is due. Forgetting the building sale. Panels fixed to a building are fixtures, and a buyer can usually claim only if the value is agreed with the seller; see what counts as plant and machinery. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Solar panels bought by a business are special rate expenditure, so without an upfront allowance they are written down at only 6% a year. In practice most businesses claim the annual investment allowance (AIA) and deduct the full cost in the year of purchase, and companies can alternatively take a 50% first year allowance on new panels. Landlords of residential property usually cannot claim at all, because plant for use in a dwelling house is excluded.

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Why are solar panels special rate expenditure?

Section 104A(1)(g) of the Capital Allowances Act 2001 (CAA 2001) designates expenditure on the provision of solar panels as special rate expenditure where it is incurred on or after 1 April 2012 for Corporation Tax or 6 April 2012 for income tax. HMRC explains at CA22335 that the change was made for clarity. Before then, photovoltaic panels that generate electricity and solar thermal systems that heat water were generally already treated as special rate, either as integral features of a building or as long life assets.

The special rate pool attracts writing down allowances of 6% a year under section 104D, compared with 14% for the main pool for periods beginning on or after 1 April 2026 (companies) or 6 April 2026 (income tax). Gov.uk lists solar panels alongside integral features, long life items, thermal insulation and higher emission cars as the items that only get 6%. The rest of that list is explained in integral features and the special rate pool.

How does the annual investment allowance apply?

The AIA is not limited to main rate assets. HMRC’s guidance at CA23084 says it may be claimed on integral features, long life assets and other special rate expenditure, and that businesses are free to allocate it in any way they choose. It expects businesses to set the AIA against the expenditure that would otherwise get the lowest rate, which will often be solar panels.

The AIA limit is £1 million a year, reduced proportionately for a short accounting period and shared between companies under common control. It is available to sole traders, partnerships of individuals and companies, and it does not require the panels to be new. For almost every small and medium installation, the AIA gives 100% relief in the period the expenditure is incurred. The timing rules, including the treatment of hire purchase and payments due more than four months after the contract, are in our guide to the annual investment allowance.

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What extra relief can a company get?

A company can claim the 50% first year allowance under section 45S on special rate plant that is unused and not second hand. Half the cost is deducted in the period of purchase and the other half goes into the special rate pool in the following period. Gov.uk notes that special rate plant may instead qualify for the 100% AIA, so the 50% allowance is mainly useful where a company’s AIA is already used up by other spending. The rules are set out in the 50% first year allowance.

Two limits are worth knowing. Full expensing at 100% is for main rate assets only, so it does not apply to solar panels. The 40% first year allowance under section 45U is also unavailable, because it excludes special rate expenditure. An unincorporated business therefore has two options for solar: the AIA, or 6% writing down allowances.

Companies that put panels on buildings they let to tenants should also check the leasing exclusion. Gov.uk says full expensing and the 50% allowance cannot be claimed on plant bought to lease to someone else unless it is background plant or machinery within a building, such as lighting, wiring and heating.

How are batteries treated?

The legislation designates solar panels as special rate; it does not mention batteries. A battery bought for a business is plant in its own right and can qualify for the AIA in the same way. Whether it belongs in the main pool or the special rate pool depends on what it is part of. HMRC describes an electrical system, which is an integral feature, at CA22330 as a system for taking power from its point of entry to the building, or from generation within the building, and distributing it through the building. A battery wired into the building’s supply as part of that system has a reasonable claim to be treated with it as special rate. A battery that functions as a separate piece of equipment may be main rate, and a new one bought by a company could then be fully expensed.

Where the AIA covers the whole installation, the pool question makes no difference to the relief. It becomes important only where spending exceeds the AIA, the company wants full expensing, or the asset is later sold. Keep the supplier’s invoice split between panels, inverters, batteries and installation so the basis of any allocation can be shown.

Why can’t most residential landlords claim?

Section 35 provides that, for a UK or overseas property business, expenditure on plant or machinery for use in a dwelling house is not qualifying expenditure. HMRC’s example at CA23060 is directly on point: a landlord who installs ground mounted solar panels in the garden of a let house, where the electricity is used in that house, gets no allowances, because the panels are for use in the dwelling even though they are not in it.

CA11520 confirms that holiday lets, serviced apartments and houses in multiple occupation are all dwelling houses. Since the furnished holiday lettings regime was abolished from 6 April 2025 (income tax) and 1 April 2025 (Corporation Tax), owners of former holiday lets are in the same position for new spending. Gov.uk guidance says pooled expenditure from before that date continues to receive writing down allowances until used up.

There are limited exceptions. A block of flats is not itself a dwelling house, so CA23060 allows plant serving the common parts, such as communal lighting, and requires a just and reasonable apportionment where a system serves both common parts and flats. Panels whose output powers only the communal areas could therefore qualify. Commercial landlords are outside section 35 altogether. The wider rules are covered in capital allowances for landlords.

Can you show a worked example?

Illustration only. Greenway Joinery Ltd, with a year ending 31 March 2027, installs new roof panels and inverters on its workshop for £60,000 and a battery for £15,000. It has spent £990,000 on other machinery in the same year.

Its other machinery is new main rate plant, so the company fully expenses it and keeps its £1 million AIA free.
It claims AIA on the full £75,000 of solar and battery spending, giving a deduction of £75,000 in the year.
Had it used the AIA elsewhere, the 50% allowance on the panels would have given £30,000 now and £30,000 into the special rate pool next year at 6%.

A sole trader installing the same system would claim AIA. If the panels were on a building that is partly the owner’s home, the claim would be reduced to reflect non business use, and the asset would sit in a single asset pool.

What mistakes come up most often?

Putting panels in the main pool. Any balance not covered by the AIA or 50% allowance goes into the special rate pool at 6%.
Claiming full expensing or the 40% allowance on panels. Neither applies to special rate expenditure.
Residential landlords claiming the AIA. Section 35 removes the expenditure from qualifying expenditure, so no allowance of any kind is due.
Forgetting the building sale. Panels fixed to a building are fixtures, and a buyer can usually claim only if the value is agreed with the seller; see what counts as plant and machinery.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.