A care home build or refurbishment involves two distinct categories of spend, and they attract tax relief in completely different ways. Plant and machinery goes through the capital allowances pools: claim AIA first, then the new 40% FYA, then the revised 14% WDA. The building structure goes through the Structures and Buildings Allowance at 3% straight-line. Getting that sequencing wrong means leaving relief on the table, often for years.
What qualifies as plant and machinery in a care home
The plant and machinery category covers equipment that has a function distinct from the building fabric. In a care setting, the following items are qualifying plant: profiling beds and specialist mattresses, ceiling track hoists and mobile hoist units, nurse-call and call-bell systems, wander management and dementia-safe door systems, specialist electrical fit-out serving equipment (not general lighting circuits, which go to the special-rate pool as integral features), commercial laundry equipment, adapted bathrooms and assisted bathing units, specialist kitchen plant, and CCTV and access-control systems. These items qualify because they are assets used in the business rather than elements of the building shell.
The building structure itself, including walls, floors, roofs, fixed windows and permanent partitions, does not go into the plant pools at all. It qualifies only for the Structures and Buildings Allowance (see below). Similarly, land never qualifies for any allowance.
Integral features, including general electrical systems, cold-water systems, lifts and escalators, and external solar shading, are qualifying plant but go into the special-rate pool at 6% WDA rather than the main pool. This distinction matters particularly for care homes because a large proportion of the electrical infrastructure sits in the special-rate category.
Step one: the Annual Investment Allowance
The Annual Investment Allowance gives a 100% deduction on qualifying plant and machinery spend, up to £1,000,000 per year. The £1m limit has applied since 1 January 2019. AIA is claimed first, before any other allowance, and it absorbs spend from both the main pool and the special-rate pool.
For a typical care home refurbishment where total plant spend is below £1m, AIA eliminates the entire plant bill in year one. There is nothing left over for the FYA or WDA calculations. For larger projects, or for operators running multiple refurbishments in the same accounting period, the £1m cap becomes the constraint and the sequencing of subsequent allowances matters.
AIA applies to new and second-hand plant alike. There is no condition that the equipment be unused. This is the key difference from the 40% FYA below.
Step two: the new 40% first-year allowance (FA 2026)
Finance Act 2026 s.29 introduced a new 40% first-year allowance under s.45U of the Capital Allowances Act 2001. It applies to new, unused main-pool plant and machinery acquired on or after the commencement date.
The 40% FYA matters when total plant spend exceeds the £1m AIA cap. Once AIA has absorbed the first £1m, any remaining spend on new, unused main-pool plant can attract the 40% FYA in the same year. That gives a first-year deduction of 40p in every pound beyond the AIA limit, compared with 14p under the standard WDA. For a large new-build care home with £2m in plant and machinery, the difference on the £1m excess is £260,000 of additional first-year relief (£400,000 at 40% versus £140,000 at 14%).
Two conditions must be met. First, the plant must be new and unused: second-hand equipment purchased at auction or from a previous operator does not qualify. Second, the plant must be main-pool: special-rate items (integral electrical systems, cold-water systems, lifts) fall outside the 40% FYA and go into the 6% special-rate WDA pool.
Step three: the writing-down allowance at 14%
Finance Act 2026 s.28 reduced the main-rate writing-down allowance from 18% to 14%, effective from 1 April 2026 for corporation tax and 6 April 2026 for income tax. The special-rate pool remains at 6%.
The WDA applies to the remaining pool balance after AIA and FYA have been applied. In the third step of the claim sequence, the residual main-pool additions (those not covered by AIA or FYA) are added to any brought-forward pool balance and 14% is applied to the total. Special-rate additions not covered by AIA go into the 6% pool.
For operators with accounting periods that straddle 1 April 2026, a blended rate applies. The blended calculation weights the old 18% and new 14% rates by the proportion of the accounting period falling before and after 1 April 2026. A 12-month period ending 31 December 2026 would have nine months post-April 2026 and three months pre, giving a blended rate of approximately 15% (three-twelfths at 18% plus nine-twelfths at 14%). Operators in this position should confirm the exact blended rate with their accountant rather than applying a rounded figure.
The correct claim sequence and why order matters
The claim order is set by the legislation: AIA first, then 40% FYA on residual new main-pool additions, then 14% WDA on the remaining pool. This sequencing is not optional; it is the statutory structure.
Order matters because the allowances have different rates and different qualifying conditions. Applying WDA to expenditure that could have attracted AIA at 100% is an expensive mistake: you defer 86p of relief per pound into a pool where it depreciates at 14% per year. Similarly, missing the FYA on new main-pool additions above the AIA cap means accepting a 14% first-year deduction when 40% was available.
| Relief | What it covers | Rate | Legislation / source |
|---|---|---|---|
| Annual Investment Allowance | All qualifying plant and machinery (new or second-hand), up to £1m per year. Claim first. | 100% | gov.uk/capital-allowances/annual-investment-allowance |
| 40% First-Year Allowance (FA 2026 s.29) | New, unused main-pool plant above the AIA cap. Does not apply to special-rate or second-hand items. | 40% | FA 2026 s.29 (s.45U CAA 2001) |
| Main-rate WDA (FA 2026 s.28) | Residual main-pool balance after AIA and FYA. From 1 April 2026 (CT) / 6 April 2026 (IT). | 14% | FA 2026 s.28 (CAA 2001 s.56) |
| Special-rate WDA | Integral features (electrical systems, cold water, lifts), thermal insulation, long-life assets. | 6% | FA 2026 s.28 |
| Structures and Buildings Allowance | Building fabric: new builds and extensions on qualifying construction costs. Not plant. | 3% straight-line | gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings |
Structures and Buildings Allowance on the building itself
The Structures and Buildings Allowance provides tax relief on the cost of constructing or extending a building. For care homes built or extended since 29 October 2018, SBA runs at 3% per year on a straight-line basis, lasting 33 and one-third years from the date of first non-residential use.
SBA covers the construction cost of walls, roofs, floors, fixed windows, drainage and associated groundworks. It does not cover plant embedded in the building (that goes into the capital allowances pools) or land. The 3% rate has applied since 1 April/6 April 2020; the earlier 2% rate from the 2018 introduction is not current.
For a new 40-bed care home with £4m in qualifying construction costs, SBA generates £120,000 of annual allowances (3% of £4m). Over a full 33-year write-off that is £3.96m of total relief on the building, claimed in equal instalments. SBA can be transferred when the building is sold, with the buyer inheriting the remaining allowance at the original cost base.
Worked example: a £2m care-home refurbishment
Consider a care home operator spending £2m on a refurbishment in the 2026/27 tax year. The spend breaks down as follows:
- £600,000 on profiling beds, hoists, nurse-call systems and specialist kitchen plant (new, unused, main-pool qualifying plant)
- £400,000 on electrical systems and rewiring (integral features, special-rate pool)
- £250,000 on second-hand equipment acquired from the previous operator (new-and-unused condition not met, so AIA only)
- £750,000 on structural building works, partitioning and decoration (SBA, not plant pools)
Total qualifying plant and machinery: £1,250,000 (£600,000 new main-pool + £400,000 special-rate + £250,000 second-hand main-pool).
Step 1: AIA at 100%, up to £1m: AIA absorbs £1m of the £1,250,000 plant spend. The allocation is the operator's choice; it is most efficient to direct AIA at the special-rate and second-hand items first (since they cannot access the FYA), leaving £250,000 of new main-pool plant as the residual. So: £400,000 special-rate and £250,000 second-hand covered by AIA, plus £350,000 of the new main-pool plant. AIA deduction: £1,000,000.
Step 2: 40% FYA on residual new main-pool additions: £250,000 of new, unused main-pool plant remains (the £600,000 less the £350,000 absorbed by AIA). FYA at 40% gives a deduction of £100,000 in year one, with £150,000 carried into the main pool.
Step 3: 14% WDA on the remaining main pool: The £150,000 residual enters the main pool. WDA at 14% gives a further £21,000 in year one. The £129,000 balance carries forward and attracts 14% WDA in future years.
SBA on building works: £750,000 of qualifying construction cost attracts SBA at 3%, giving £22,500 per year for 33 and one-third years.
Total year-one relief: £1,000,000 (AIA) + £100,000 (FYA) + £21,000 (WDA) + £22,500 (SBA) = £1,143,500, against £2m of total spend. The effective year-one relief rate on total project cost is approximately 57%, with further WDA and SBA rolling forward.
How allowances interact with corporate structure
Capital allowances belong to the entity that incurs the expenditure. In a propco/opco structure, where one company owns the property and a separate company operates the care business, the split matters:
- The opco incurs the cost of fit-out, beds, equipment and specialist systems. It claims AIA, FYA and WDA on that plant.
- The propco owns the building and incurs construction costs. It claims SBA on the structure.
If the propco also funds and owns the fit-out plant (for example, as landlord fixtures under a lease), the propco claims the plant allowances and the opco has no claim. The lease terms should reflect this, or the opco risks having no allowances despite bearing the economic cost.
The value of each allowance depends on the corporation tax rate the company pays: 19% on profits up to £50,000, 25% above £250,000, with marginal relief between. A £1m AIA deduction is worth £190,000 of cash tax at the small profits rate and £250,000 at the main rate. For associated companies in a propco/opco structure, the thresholds are divided between the entities, which often means both companies pay at the 25% main rate sooner than a standalone operator would.
For operators considering buying an existing care home rather than building, the allowances position on the acquisition is a separate analysis covered in detail on the buying a care home service page. Briefly: plant acquired as part of a business purchase requires a just and reasonable apportionment, and the vendor's s.198 election can fix the value at which allowances transfer.
For a full review of the care-home acquisition tax position, see the care homes hub.