Are Solar Panels Tax Deductible for Landlords?

Yes — a commercial landlord running a property business can claim capital allowances on solar panels installed on a let property, with the full cost (up to £1 million a year) written off against taxable profit in year one through the Annual Investment Allowance (AIA). What landlords cannot use is full expensing or the 50% first-year allowance: both are explicitly closed to plant bought to lease to someone else. That single exclusion is the reason a landlord’s solar tax position looks different from an owner-occupier’s, and getting it wrong is the most common mistake we see. This is general guidance, not advice on your specific position — always take professional advice from your accountant before filing.

The short answer, and the one trap to avoid

Solar panels on a commercial building are “plant and machinery” for capital-allowances purposes. Plant and machinery doesn’t reduce your tax bill pound for pound — it reduces your taxable profit, and the cash benefit is the relief multiplied by your tax rate. A company paying 25% corporation tax that claims £100,000 of allowances on a solar array saves roughly £25,000 in tax, not £100,000.

The trap is assuming the headline reliefs you read about for businesses apply to you as a landlord. They often don’t. “Full expensing” (100% first-year relief on qualifying main-rate plant) and the “50% first-year allowance” on special-rate plant both carry a hard exclusion: they are not available for assets bought to be leased. A landlord installing solar on a building let to a tenant has, by definition, bought plant that forms part of a leased property. So those two reliefs are off the table.

The good news is that the Annual Investment Allowance is not caught by the leasing exclusion. AIA gives 100% relief in year one on up to £1m of qualifying expenditure, and it is available to property businesses. For almost every commercial solar project a landlord will undertake, AIA does the same job full expensing would have done — it just sits under a different name with a £1m annual cap.

Why solar is “special rate” and what that changes

Solar panels are classified as special rate plant and machinery (the same pool as electrical systems, lighting and other “integral features”). This matters in two ways.

First, the 50% first-year allowance you may have seen advertised only ever applied to special-rate assets — and even where a business could use it, landlords are excluded by the leasing rule. So that route is doubly irrelevant here.

Second, special-rate matters once your spend exceeds the AIA cap or if AIA isn’t available for some reason. Any qualifying expenditure that doesn’t get full relief in year one falls into the special-rate pool and attracts a 6% writing-down allowance (WDA) on a reducing-balance basis. That is slow — at 6% a year it takes well over a decade to relieve most of the cost — which is exactly why you want to capture as much as possible inside the AIA in the year of installation.

For a typical landlord-scale array (say a 100kWp system at roughly £82,000–£110,000, or a 250kWp system at £150,000–£240,000), the whole cost sits comfortably inside the £1m AIA, so the practical answer is: claim AIA, get 100% relief in year one, done. The 6% WDA only becomes the active mechanism on very large installs or where you’ve already used your AIA on other capital spend that year.

What a landlord can actually claim — a worked example

Take a property investment company that installs a 250kWp rooftop array on a let industrial unit for £200,000 (ex-VAT — solar has been zero-rated since April 2022, so there is no VAT to recover or worry about on the install itself).

If that same company had already spent £900,000 of its AIA on other plant that year, only £100,000 of the solar would get full relief; the remaining £100,000 would go into the special-rate pool at 6% WDA — roughly £6,000 of relief in year one, tapering down each year after. Same total relief eventually, very different timing. Sequencing your capital spend across accounting periods is where an accountant earns their fee.

Note this is the company position. An individual or partnership landlord can also claim AIA against a property business, but corporation-tax mechanics like full expensing never applied to them in the first place. Either way, the destination is the same: AIA for the bulk, special-rate WDA for any overflow.

The s.198 fixtures election — do not skip this

Solar panels bolted to a building are usually fixtures in law, and fixtures bring a specific rule that bites on both purchase and sale: the Capital Allowances Act 2001 (CAA 2001) s.198 election.

When you buy a commercial property that already has solar (or other claimable fixtures), you can generally only claim allowances on those fixtures if the seller and buyer jointly sign a s.198 election agreeing a value for them, and if the seller had “pooled” the expenditure. No election, or no pooling history, and the allowances can be lost permanently — not just to you, but to every future owner. This is the single most overlooked point in commercial property transactions involving solar.

When you sell, the s.198 election lets you and the buyer fix the disposal value of the fixtures (within limits — it can’t exceed original cost or the tax written-down value). Agree a low figure and you keep more of the relief you’ve already banked; agree a high figure and you hand it to the buyer. It is a negotiation point with real money attached, and it belongs in the heads of terms, not as an afterthought at completion.

The practical takeaways for a landlord:

• If you’re installing solar yourself, keep clean records of the spend so it can be pooled and, later, valued for a s.198 election on any future sale.
• If you’re buying a building with existing solar, make the fixtures position — pooling history plus a s.198 election — a condition of the deal. Raise it during due diligence, not afterwards.
• The numbers and the drafting are specialist work; this is precisely the point at which to take professional advice.

We cover the mechanics in more depth in our guide to capital allowances and funding for owners.

The landlord’s bigger problem: the split incentive

Tax relief improves a landlord’s return, but it doesn’t fix the structural issue that makes landlord solar harder than owner-occupier solar: the split incentive. The landlord pays for the panels; the tenant, who pays the electricity bills, gets the savings. Self-consumption is the number-one driver of solar returns — solar-only systems typically self-consume 30–50% of what they generate, rising to 60–80% with a battery — so if the benefit flows to the tenant, the landlord’s payback can look thin on paper even with the tax relief.

There are established ways to resolve this — common-parts supply, a tenant power purchase agreement (PPA), selling the roof to a third party, or a green-lease arrangement that shares the value. Each has a different tax and capital-allowances consequence, which is why the funding structure and the tax claim need to be designed together rather than bolted on. We walk through the options in the split incentive, solved.

Other reliefs worth knowing (briefly)

Beyond capital allowances, a few standing facts shape the landlord economics, and all of them are subject to change — date-check before you rely on them:

• Business rates: solar installations are exempt from business rates until 2035, and co-located battery storage shares that exemption when paired with solar.
• Export income: electricity exported to the grid earns the Smart Export Guarantee (SEG), typically around 12–16p/kWh and set by your supplier — useful, but far less valuable than the ~24–28p/kWh you avoid by consuming it on site.
• VAT: solar has been zero-rated since April 2022, so there’s no VAT on the qualifying install to recover.

None of these is a substitute for the capital-allowances claim — they sit alongside it.

So, are solar panels tax deductible for landlords?

In substance, yes. A commercial landlord with a property business can write off the full cost of a qualifying solar installation against taxable profit, normally in year one, using the £1m Annual Investment Allowance. The route is AIA (not full expensing or the 50% first-year allowance, both of which the leasing exclusion shuts off), with anything above the cap relieved more slowly at 6% in the special-rate pool. On top of that, get the s.198 fixtures election right on any purchase or sale, because that’s where allowances are most often won or lost.

Because timing, pooling, elections and the funding structure all interact, the figures here are illustrative and the right move depends on your accounting period, your tax rate and how the system is financed — take professional advice before you commit. If you’d like a costed proposal for your building, with the capital-allowances and self-consumption numbers modelled for your tenant and lease structure, request a quote and we’ll build the case for your specific site.