Do I claim capital allowances on the VAT-inclusive or exclusive figure?

Generally on the VAT-exclusive cost if you can recover the VAT, because the VAT is not a cost to you. If the VAT is irrecoverable it generally forms part of the cost and can be included.

Does this mean an exempt business gets more capital allowances?

On the qualifying items, the claim can be based on a higher figure because the irrecoverable VAT is part of the cost. That is partial compensation, not a benefit — they are still worse off overall.

Are capital allowances available on the whole purchase price?

No. They apply to qualifying plant and machinery and certain integral features within the building, not to the land or the structure itself. A specialist survey usually identifies the qualifying element.

Does the extra SDLT caused by VAT qualify for allowances?

SDLT is a transaction tax rather than expenditure on plant, so it does not generally attract plant and machinery allowances. It may form part of the base cost for capital gains purposes.

Costs, SDLT and tax

VAT and Capital Allowances on Commercial Property

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Capital allowances and VAT are separate reliefs administered under different rules. They meet at one practical question: what number do you claim on?

The basic interaction

Capital allowances are given on expenditure. The question is whether VAT forms part of that expenditure.

Your VAT position	Capital allowances claimed on
VAT fully recoverable	The VAT-exclusive cost
VAT irrecoverable	Generally the VAT-inclusive cost
Partly recoverable	The cost including the irrecoverable element

The logic is straightforward. If you recover the VAT, it was never a cost to you, so there is nothing extra to claim on. If you cannot recover it, it is part of what the asset cost you.

Why this matters to exempt businesses

A business that cannot recover VAT — some healthcare, insurance, financial services, residential landlords — bears the 20% permanently.

On the qualifying plant and machinery within the building, the capital allowances claim can be based on the VAT-inclusive figure. That recovers some of the value over time through tax relief.

It is worth being clear about what this is: partial compensation, not a silver lining. A business paying irrecoverable VAT and claiming allowances on a higher base is still substantially worse off than one that recovered the VAT outright. Tax relief at a marginal rate is worth considerably less than a full refund.

What actually qualifies

Capital allowances are not available on the whole purchase price. They apply to:

Qualifying plant and machinery within the building
Certain integral features — electrical systems, cold water systems, heating and ventilation, lifts

They do not apply to the land, and generally not to the structure itself.

Identifying the qualifying element in a second-hand building usually requires a specialist capital allowances survey, and there are procedural requirements on a purchase — including fixtures elections between buyer and seller, with their own time limits.

Get this on the agenda before completion. The requirements are easier to satisfy while both parties are still at the table.

The SDLT question

A related question people ask: does the extra stamp duty caused by VAT attract allowances?

Generally no. SDLT is a transaction tax rather than expenditure on plant and machinery. It may form part of the base cost for capital gains purposes, which is a different relief operating on a different timescale.

So the additional SDLT arising because VAT inflated the consideration remains what it was: a permanent, unrelieved cost in the year of purchase.

Sequencing it properly

Establish your VAT recovery position first. It determines the base for the allowances claim.
Commission a capital allowances review around the acquisition, not years later.
Deal with fixtures elections with the seller, within the applicable time limits.
Keep the VAT evidence — invoice, registration, option to tax. The recovery position supports the allowances basis.
Model both reliefs together when appraising a deal, particularly where recovery is restricted.

That last point matters for exempt buyers specifically. If you are pricing a building on which you will bear irrecoverable VAT, the capital allowances position on the qualifying element is part of the real cost — and it is usually modelled late, if at all.

This guide is general information, not tax advice. Capital allowances and VAT recovery are both technical — take advice from your accountant and a capital allowances specialist.

Frequently asked questions

Do I claim capital allowances on the VAT-inclusive or exclusive figure?: Generally on the VAT-exclusive cost if you can recover the VAT, because the VAT is not a cost to you. If the VAT is irrecoverable it generally forms part of the cost and can be included.
Does this mean an exempt business gets more capital allowances?: On the qualifying items, the claim can be based on a higher figure because the irrecoverable VAT is part of the cost. That is partial compensation, not a benefit — they are still worse off overall.
Are capital allowances available on the whole purchase price?: No. They apply to qualifying plant and machinery and certain integral features within the building, not to the land or the structure itself. A specialist survey usually identifies the qualifying element.
Does the extra SDLT caused by VAT qualify for allowances?: SDLT is a transaction tax rather than expenditure on plant, so it does not generally attract plant and machinery allowances. It may form part of the base cost for capital gains purposes.

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