Fitting out a Cambridge lab, workshop or office you own: Budget 2026's capital allowance changes explained

Cambridge businesses spend heavily on the inside of their buildings. A biotech fitting out wet labs near the Biomedical Campus, an engineering firm kitting out a workshop on the edge of the city or a professional practice refurbishing offices off Hills Road can easily spend as much on plant, equipment and services as on the property itself. Budget 2026 changes the tax relief on part of that spending from 2027. This article, from Business Mortgages Broker, explains the changes, what the Budget does not say, and how they fit with buying your premises with a commercial mortgage.

What the Budget changes

The key paragraph is short. The government will "increase the main rate first-year allowance to 50% for expenditure incurred on or after 1 January 2027 and to reduce the main rate writing down allowance to 12%, with effect from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax" (Budget 2026, para 6.251).

Elsewhere the Budget describes the first-year allowance rise as "from 40% to 50%" and the writing-down allowance cut as "two percentage points" (para 2.54). In the same paragraph it confirms the government is "capping the headline rate at 25%" for corporation tax and "maintaining the UK's world-leading full expensing regime" (para 2.54).

So there are three moving parts:

• Main rate first-year allowance (FYA): up from 40% to 50% for qualifying spending incurred on or after 1 January 2027.
• Main rate writing-down allowance (WDA): down by two percentage points to 12%, from 1 April 2027 for companies and 6 April 2027 for unincorporated businesses.
• Full expensing: kept. The Budget does not change it.

Overall the package raises money. The Treasury costs it at an extra £765 million in 2027-28, rising to £1,120 million in 2031-32 (Table 6.1, item 58). The Budget's own description is that "Reformed capital allowances will strengthen the upfront incentive to invest while also raising revenue" (Budget 2026, printed p.5). In plain terms: more relief up front on new spending, less relief each year on the balance you are already carrying.

What the Budget does not say

Be careful with assumptions here. The Budget document does not set out exactly which assets or which businesses the 50% main rate FYA covers, or how it interacts with full expensing. It also does not mention the Annual Investment Allowance or the Structures and Buildings Allowance at all. Until the legislation and HMRC guidance are published, do not assume that a particular item of lab or workshop kit will fall under one regime rather than another. Your accountant will need to look at each category of spend.

Why this matters for Cambridge owner-occupiers

Most of what makes a lab, clean room or workshop usable is not the building shell but what goes inside it: fume cupboards, specialist ventilation, benching, power and data, compressed air, cranes, machinery and testing equipment. Capital allowances are the route by which a business gets tax relief on much of that spending, and the timing of that relief affects cash flow in the years when a new site is costing the most.

The Treasury itself notes that the Oxford to Cambridge corridor "needs more residential, commercial, and lab space" (para 4.92), and the Budget includes plans to agree a business rates retention zone "to support the Biomedical campus and development in Cambridgeshire from 2028" (para 4.62). For companies deciding whether to buy rather than lease space in that market, the after-tax cost of fit-out is part of the decision.

Illustrative example

The figures below are invented to show the mechanics. They assume a company paying corporation tax at 25%, spending that qualifies for the main rate first-year allowance rather than full expensing, and no other complications. Real cases will differ.

New spending after 1 January 2027

• A Cambridge engineering company spends £200,000 on main rate plant and equipment for a workshop it has just bought.
• At a 40% FYA, it would deduct £80,000 in the first year, worth £20,000 of tax.
• At a 50% FYA, it deducts £100,000 in the first year, worth £25,000 of tax.
• The remaining £100,000 goes into the main pool and is relieved over later years at the writing-down allowance rate.

An existing pool balance

• Another company is carrying £300,000 in its main pool from earlier spending.
• Cutting the WDA by two percentage points reduces its annual deduction on that balance by £6,000.
• At 25%, that is £1,500 less tax relief in that year, with the balance relieved over a longer period.

The picture is clear enough: if you are about to spend, the new rules may help in year one; if you spent heavily in past years and are working through a large pool, the slower writing-down rate means less relief each year.

Buying the building and fitting it out: how the finance fits together

Capital allowances do not reduce what you pay for a building, and most lenders will not lend against fit-out in the same way as against bricks and mortar. It helps to think of a purchase in two parts.

The property

An owner-occupier commercial mortgage is secured on the freehold or long leasehold. The lender values the building and sizes the loan on that value and on whether your trading profit covers the repayments. Highly specialised fit-out, such as wet labs, does not always add value in proportion to its cost, because a future buyer may not need the same layout. Expect a valuer to focus on the underlying building and its alternative uses.

The fit-out and equipment

Plant and machinery is often funded from cash, from the business's own reserves, or through separate asset finance. Better up-front tax relief on that spending can improve cash flow in the year of investment, which in turn supports affordability on the mortgage. Lenders will look at the whole picture, including the cost of the fit-out and how it is being paid for.

Fixtures when you buy

When you buy a building that already contains fixtures, such as heating, lighting, lifts or air handling, the seller and buyer normally agree how much of the purchase price relates to those fixtures. That agreement can affect what allowances you can claim. Raise it early with your solicitor and accountant, because it is far harder to fix after completion.

Research and development

If your business claims R&D tax relief, there is one administrative change: the government will "remove the R&D tax credit Claim Notification Form from 1 April 2027, and simplify the Additional Information Form from autumn 2027" (para 6.253). The Budget document does not announce changes to R&D relief rates.

The wider picture

The OBR forecast in the Budget shows business investment flat in 2026, at 0.0%, and falling by 0.5% in 2027, before recovering to 1.0% growth in 2028 (Table 1.1). The government is clearly trying to pull investment forward with a bigger up-front allowance, while recovering money through the slower writing-down rate. For owner-occupiers, timing is now part of the planning.

What to do now

1. List your planned spend for 2027. Separate building works, fixtures, and plant and machinery, and note when each is likely to be incurred. Spending incurred on or after 1 January 2027 may qualify for the higher first-year allowance.
2. Ask your accountant which regime applies to each item. Full expensing, the 50% first-year allowance and the main pool can all be in play. The Budget document does not settle every detail, so wait for the legislation before assuming.
3. Check your existing main pool. If you carry a large balance, model the effect of the two percentage point cut from April 2027 on your tax forecasts.
4. Plan purchase and fit-out finance together. Decide what the mortgage will fund, what cash or asset finance will cover, and how the tax relief changes cash flow in the first year.
5. Agree the fixtures position before you exchange. If you are buying an existing building, settle the split of the price with the seller through your advisers.
6. Keep R&D paperwork in step. If you claim R&D relief, watch for the changes to the claim forms from April 2027.

Key dates

• 1 January 2027: Main rate first-year allowance rises to 50% for expenditure incurred on or after this date.
• 1 April 2027: Main rate writing-down allowance falls to 12% for corporation tax; R&D Claim Notification Form removed.
• 6 April 2027: Main rate writing-down allowance falls to 12% for income tax.
• Autumn 2027: Simplified R&D Additional Information Form.
• 2028: Planned business rates retention zone for the Biomedical campus and development in Cambridgeshire.

Brought to you by Business Mortgages Broker

This article is brought to you by Business Mortgages Broker, which arranges owner-occupier business mortgages for UK trading companies, including science, engineering and professional firms buying the buildings they work from. Founder Matt Lenzie has 25 years in financial services, raising debt and equity, and has arranged around £400m of property finance. To see how a purchase might be structured, read the guide from Business Mortgages Broker on Cambridge business mortgages.

Source: HM Treasury, Budget 2026 (HC 726), 28 October 2026. This article is general information, not tax or financial advice. Take advice from a qualified accountant on how capital allowances apply to your spending.