In 2026, the treatment of Capital Allowances has been drastically simplified. The Nigeria Tax Act 2025 moved away from the old, confusing system of "Initial" and "Annual" allowances on a declining balance and replaced it with uniform annual rates on a straight-line basis.
Here is the current framework for 2026:
1. The New "Class" System (2026 Rates)
Instead of dozens of different rates, almost all assets now fall into three clear categories. You claim the same percentage of the original cost every year until the asset is fully written off.
| Asset Class | Annual Rate | Examples of Assets |
|---|---|---|
| Class 1 | 10% | Buildings (Industrial & Non-industrial), Intangible Assets, Agricultural Expenditure, Masts. |
| Class 2 | 20% | Plant & Machinery, Furniture & Fittings, Mining Expenditure, Agricultural Equipment. |
| Class 3 | 25% | Motor Vehicles, Software, and other equipment not listed elsewhere. |
2. Key Rules for Claiming Allowances
- The "VAT-Paid" Requirement: This is a major enforcement rule in 2026. You cannot claim capital allowance on an asset if you cannot prove that the required VAT or Import Duties were paid when you bought it.
- The 1% Notional Value: You can never write an asset down to zero. You must keep a ₦1 value (some guidelines say ₦10, but the standard is a notional residual) on your books for each asset until it is officially disposed of.
- Usage Proration: If an asset is used for both business and personal reasons (like a director's car), the allowance is prorated. However, if your "non-taxable income" is less than 10% of your total income, the tax office usually lets you claim the full allowance.
3. The "Two-Thirds" Restriction
There is a limit on how much capital allowance you can use in a single year to reduce your tax bill:
- The Rule: You cannot use capital allowances to reduce your "Assessable Profit" by more than two-thirds (66.7%).
- Exemptions: If you are in Manufacturing or Agriculture, this restriction does not apply. You can use your allowances to wipe out 100% of your taxable profit if you have enough of them.
4. Balancing Charges & Allowances (When you sell the asset)
When you sell an asset, the tax office looks at the "Tax Written Down Value" (TWDV):
- Balancing Charge: If you sell the asset for more than its TWDV, the profit is treated as taxable income (a "balancing charge").
Balancing Allowance: If you sell it for less, you can claim the difference as an extra expense (a "balancing allowance") in that year.