Capital allowances on solar panels — a UK 2026 guide
Tax relief cuts the real cost of commercial solar by 12–25% depending on your structure. Here are the four allowances that apply, when each one wins, and a worked example.
This is general information, not tax advice — check specifics with your accountant.
Key takeaways
- UK businesses can deduct 100% of commercial solar installation costs from taxable profits in year one via HMRC Annual Investment Allowance.
- At the standard 25% Corporation Tax rate, a £100,000 commercial solar installation provides an immediate £25,000 tax reduction.
- Expenditure exceeding the £1 million AIA limit qualifies for 50% First Year Allowance or 6% annual special rate writing down allowances.
The four allowances that apply
Full expensing (main rate assets)
100% first-year deduction for qualifying plant. Solar PV usually sits in special-rate pool, so full expensing does not apply directly — but ancillary items (racking, cabling) can qualify.
50% first-year allowance (SR-FYA)
For special-rate expenditure — the pool solar PV normally falls into. Extended through March 2026. Company deducts 50% in year one, remainder at 6%/yr on writing-down basis.
Annual Investment Allowance (AIA)
£1m/year 100% deduction. Available to sole traders, partnerships and companies — often the cleanest route for SMEs where total capex is inside the £1m cap.
Structures and Buildings Allowance
3%/yr on qualifying non-residential structures. Rarely applied to solar, but can apply to solar carport frames treated as buildings.
Related reading
FAQ
Can businesses claim capital allowances on solar panels?
Yes. UK businesses can claim capital allowances on commercial solar PV — most commonly the 50% first-year allowance for special-rate expenditure, or the £1m Annual Investment Allowance. Choice depends on total qualifying spend and company structure.
Does full expensing apply to solar panels?
Not directly. Solar PV is treated as special-rate expenditure, so it falls under the 50% first-year allowance rather than 100% full expensing. Some ancillary components (mounting steel, DC cabling installed as fixings) can be argued as main-rate — take specialist tax advice.
What's a worked example of the tax saving?
A £200,000 commercial solar system claimed as special-rate FYA: 50% (£100,000) is deducted in year one, saving £25,000 in corporation tax at 25%. The remaining £100,000 is written down at 6%/yr — £1,500/yr tax saving thereafter. Total 25-year tax value: roughly £50,000.
Can I claim AIA on solar if my total capex is under £1m?
Usually yes. AIA gives 100% relief in year one on qualifying plant — often the best route for SMEs, and does not affect other AIA claims up to the £1m annual cap.
Do capital allowances apply to leased or PPA solar?
The lessor claims allowances on operating leases, not the user. On a PPA, the developer claims — you get the electricity savings but not the tax relief. Purchase (cash or loan) is the only route where you claim allowances directly.
Get a tax-optimised solar proposal
Read next
Related guides & sector pages
Business rates & solar panels
The 2023 exemption and what it means for you.
Read GuideSmart Export Guarantee for business
Best SEG tariffs and switching tips.
Read GuideSolar for MEES & EPC compliance
Lifting SBEM ratings past the 2027 C threshold.
Read SectorFactories & manufacturing
Match daytime process loads with on-site solar.
ReadRequest your free feasibility review
Share a few details and our team will send a no-obligation review of your site — indicative system size, annual generation, savings and payback. Prefer to explore numbers yourself first? Run the calculator or contact us directly.
- MCS & RECC accredited installer
- Response within one working day
- No cost, no obligation