Solar Panels & Tax UK: HMRC Rules, VAT, Capital Allowances & More
Understanding how HMRC treats solar panels is essential whether you're a homeowner, landlord, or business owner. The tax rules differ significantly depending on who you are and how you use your solar installation — from 0% VAT for homeowners to capital allowances worth thousands for companies.
Quick Answer
In 2026, homeowners pay 0% VAT on solar panel installations and do not pay tax on Smart Export Guarantee (SEG) income. Businesses can claim 100% first-year capital allowances on solar panels through the Annual Investment Allowance (AIA) or full expensing. Solar panels do not increase your council tax band. HMRC treats solar differently for homeowners, businesses, and landlords — this guide covers all three.
How HMRC treats solar panels: an overview
HMRC does not have a single set of rules for solar panels. Instead, the tax treatment depends on whether you are a homeowner, a business, or a landlord, and on how the solar installation is used. For most homeowners, the news is overwhelmingly positive — you pay no VAT, owe no tax on export income, and your council tax band remains unchanged.
For businesses, solar panels qualify for generous capital allowances that can offset your entire installation cost against taxable profits in the first year. However, any income you earn from exporting surplus electricity is taxable as trading income.
Below, we break down every tax consideration relevant to solar panels in the UK as of 2026, covering HMRC rules, HMRC guidance, and related local authority taxes.
| Tax Area | Homeowners | Businesses | Landlords |
|---|---|---|---|
| VAT on installation | 0% until at least March 2027 | 20% (reclaimable if VAT-registered) | 0% if installed on residential property |
| SEG export income | Not taxable | Taxable as trading income | Taxable as property income |
| Capital allowances | N/A | 100% first-year via AIA or full expensing | Capital expenditure (not deductible against rental income) |
| Council tax / business rates | No increase | May increase rateable value | No increase (residential) |
| Capital Gains Tax | No CGT on primary residence | Standard CGT rules on disposal | Solar adds value but CGT applies on sale |
0% VAT on residential solar panels
Since 1 April 2022, the UK Government has applied a 0% VAT rate to the supply and installation of energy-saving materials (ESMs) in residential properties. This includes solar panels, battery storage systems, inverters, and the associated installation labour. The relief was originally set to expire in March 2027, and at the time of writing remains in effect until at least 31 March 2027.
What 0% VAT covers
Solar PV panels, solar thermal panels, battery storage, inverters, mounting equipment, wiring, and all installation labour. It also covers insulation, heat pumps, and other ESMs when installed in qualifying residential properties.
Who qualifies?
- Homeowners installing solar on their own property
- Landlords installing solar on residential rental properties
- Housing associations and social landlords
- Charities installing solar on residential buildings they use for a relevant charitable purpose
Who does NOT qualify?
- Businesses installing solar on commercial premises (standard 20% VAT applies, but VAT-registered businesses can reclaim this as input tax)
- New-build properties (the zero-rate applies to existing buildings only)
- DIY self-installers purchasing panels separately (the relief applies to supply and installation together)
Before April 2022, residential solar attracted a reduced 5% VAT rate. The move to 0% saves homeowners around £1,000–£2,000 on a typical installation compared to the old 20% standard rate, and £250–£500 compared to the former 5% reduced rate.
Business tax relief: capital allowances for solar panels
Businesses that install solar panels on commercial premises can claim capital allowances — deducting the cost of the installation from their taxable profits. This is one of the most significant tax incentives for commercial solar in the UK.
Annual Investment Allowance (AIA)
The AIA allows businesses to deduct 100% of the cost of qualifying plant and machinery (including solar panels) from taxable profits in the year of purchase. The permanent AIA limit is £1,000,000 per year — more than enough to cover virtually any commercial solar installation. Available to sole traders, partnerships, and companies.
Full Expensing (Companies Only)
Since 1 April 2023, companies (not sole traders or partnerships) can claim full expensing — a 100% first-year allowance on qualifying main-rate plant and machinery with no annual cap. This effectively replaced the Super Deduction (which ended 31 March 2023). Solar panels qualify as main-rate assets.
How capital allowances work in practice
If your company spends £50,000 on a commercial solar installation and claims full expensing, the entire £50,000 is deducted from your taxable profits in that accounting period. At the current Corporation Tax rate of 25%, this saves you £12,500 in tax in year one. Sole traders and partnerships can achieve the same result through the AIA, reducing their Income Tax and National Insurance liability.
| Allowance | Rate | Annual Cap | Available To | Status in 2026 |
|---|---|---|---|---|
| Annual Investment Allowance | 100% | £1,000,000 | All businesses | Permanent |
| Full Expensing | 100% | No cap | Companies only | Permanent (from April 2023) |
| Super Deduction | 130% | No cap | Companies only | Ended 31 March 2023 |
| Writing Down Allowance | 18% per year | No cap | All businesses | Permanent (fallback option) |
If you exceed the AIA limit or choose not to claim the full amount in year one, you can claim the remaining balance through the Writing Down Allowance (WDA) at 18% of the reducing balance each year until the cost is fully written off.
Smart Export Guarantee income: is SEG taxable?
The Smart Export Guarantee (SEG) pays you for surplus electricity you export to the National Grid. Rates typically range from 3p to 15p per kWh depending on your supplier and tariff. But do you need to declare this income to HMRC?
Homeowners: NOT taxable
If you are a homeowner generating electricity from solar panels on your own home, your SEG income is not taxable. HMRC does not consider domestic microgeneration income to be trading income. You do not need to report it on your Self Assessment tax return. This applies regardless of how much you earn — even if you have a large system earning several hundred pounds per year.
Businesses: taxable
If you are a business generating electricity from solar panels on commercial premises, your SEG income is taxable. It counts as trading income and must be included in your business accounts. It is subject to Corporation Tax (for companies) or Income Tax (for sole traders and partnerships). However, the amounts are usually modest compared to the electricity savings.
Landlords: If you are a landlord and receive SEG payments from solar panels on a rental property, HMRC may treat this as property income. It should be included on your Self Assessment return alongside your rental income. In practice, the amounts are small (£100–£300 per year for a typical residential system).
Note: The old Feed-in Tariff (FiT) payments followed the same rules — non-taxable for domestic installations, taxable for businesses. The FiT scheme closed to new applicants on 31 March 2019 but existing recipients continue to receive payments.
Business rates and solar panels on commercial property
If you install solar panels on a commercial property, the Valuation Office Agency (VOA) may reassess the property's rateable value, which determines your business rates bill. Solar panels are considered plant and machinery, and the VOA includes their value in the property assessment.
In practice, the increase in rateable value is usually modest. The VOA assesses the rental value that the solar installation adds to the property, not the cost of the panels themselves. For a typical 50kW commercial rooftop system, you might see a rateable value increase of £1,000–£3,000, which translates to an extra £500–£1,500 per year in business rates (depending on the multiplier in your area).
Small Business Rate Relief
If your property's rateable value is below £15,000, you may qualify for Small Business Rate Relief (SBRR), which can reduce your rates bill by up to 100%. This means smaller businesses may pay no additional rates after installing solar panels.
Challenging the assessment
If you believe the VOA has overvalued your property after a solar installation, you can challenge the assessment through the Check, Challenge, Appeal process. Professional rating surveyors can help with this.
Tip: Factor potential business rates increases into your commercial solar ROI calculation. Even with a small rates increase, the electricity savings and capital allowances almost always make commercial solar highly cost-effective.
Council tax: do solar panels affect your council tax band?
No. Solar panels do not increase your council tax band in England, Scotland, or Wales. The Valuation Office Agency (England and Wales) and the Scottish Assessors Association have confirmed that the installation of solar panels is not grounds for rebanding a property to a higher council tax band.
Council tax bands in England and Wales are based on property values as at 1 April 1991 (or 2003 in Wales). Even though solar panels increase your property's current market value, this does not trigger a revaluation. Your band only changes if there is a material increase in value combined with a sale of the property, and even then, the VOA has indicated that energy-saving improvements are not a factor they would use to justify rebanding.
In Northern Ireland, domestic rates are based on the capital value of the property as at 1 January 2005. The Land & Property Services has not indicated that solar panels would trigger a revaluation.
Landlord tax: solar panels on rental properties
If you are a landlord, the tax treatment of solar panels depends on whether HMRC considers the installation to be a revenue expense (deductible against rental income) or capital expenditure (not immediately deductible).
Capital expenditure (most cases)
Installing solar panels on a rental property is almost always treated as capital expenditure because it is an improvement to the property, not a repair or replacement. This means you cannot deduct the cost directly from your rental income. However, the cost increases your base cost for Capital Gains Tax purposes when you eventually sell the property.
Revenue expense (rare cases)
If you are replacing an existing solar panel system on a like-for-like basis (same capacity, same technology), HMRC may accept this as a repair or replacement, which is deductible against rental income. However, if the new system is an upgrade or different from what was there before, it is capital expenditure.
Landlords and SEG income
If the solar panels on your rental property generate SEG income paid to you (not the tenant), you should declare this as property income on your Self Assessment tax return. If the tenant receives the SEG payments directly, it is their income to deal with.
Furnished Holiday Lettings (FHL)
If your rental property qualifies as a Furnished Holiday Letting, you may be able to claim capital allowances on the solar installation in the same way a business can, using the Annual Investment Allowance. However, note that the FHL tax regime has been subject to reform — check the latest HMRC guidance or speak to your accountant for the current rules in 2026.
Selling your home: do solar panels affect Capital Gains Tax?
If you sell your primary residence (the home you live in), you are entitled to Private Residence Relief (PRR), which means you pay no Capital Gains Tax on the sale — regardless of how much the property has increased in value. Solar panels typically add £2,000–£6,000 to a home's value, but this gain is completely exempt from CGT under PRR.
If you sell a second home or investment property with solar panels, CGT applies to the overall gain. However, the cost of installing the solar panels counts as an enhancement expenditure — you can add it to your base cost, which reduces your taxable gain.
Example: CGT on a rental property
You bought a rental property for £200,000 and spent £8,000 on solar panels. You sell for £280,000. Your base cost is £200,000 + £8,000 = £208,000. Your taxable gain is £280,000 – £208,000 = £72,000 (before the annual CGT exemption). Without claiming the solar panels as enhancement expenditure, your gain would be £80,000 — so the solar panels save you CGT on £8,000 of gains.
Keep receipts and invoices for your solar panel installation — you will need them to prove enhancement expenditure if you sell the property in the future.
Frequently Asked Questions About HMRC Solar Panels & Tax
Do I pay VAT on solar panels in the UK?
No — since 1 April 2022, residential solar panel installations are subject to 0% VAT. This covers the panels, batteries, inverters, and installation labour. The 0% rate is in effect until at least 31 March 2027. Businesses installing solar on commercial premises pay the standard 20% VAT but can reclaim it as input tax if VAT-registered.
Is Smart Export Guarantee (SEG) income taxable?
For homeowners, no. HMRC does not treat domestic microgeneration income as taxable trading income. For businesses, yes — SEG income is trading income and must be included in your accounts. For landlords, it may be treated as property income and should be declared on your Self Assessment return.
Can I claim solar panels as a business expense?
Yes. Businesses can claim the full cost of solar panels as a capital allowance. The Annual Investment Allowance (AIA) gives 100% first-year deduction up to £1,000,000. Companies can also use full expensing (100% first-year allowance with no cap). This can save 19–25% of the installation cost in reduced Corporation Tax or Income Tax in the year of installation.
Do solar panels increase my council tax?
No. The Valuation Office Agency has confirmed that solar panel installations do not increase your council tax band in England, Scotland, or Wales. Your council tax band is based on historic property values (1991 in England, 2003 in Wales) and solar panels are not grounds for rebanding.
Can landlords deduct solar panel costs from rental income?
Generally no. Installing solar panels on a rental property is usually treated as capital expenditure (an improvement) rather than a revenue expense (a repair). You cannot deduct the cost from rental income, but you can add it to your base cost for Capital Gains Tax purposes. The only exception is a genuine like-for-like replacement of an existing solar system.
Do I need to tell HMRC if I install solar panels?
Homeowners do not need to inform HMRC about a domestic solar installation — there is nothing to declare. Businesses should include the capital allowance claim in their tax return. Landlords should consider how the installation affects their property income calculations and CGT base cost.
What happened to the Super Deduction for solar panels?
The Super Deduction (130% first-year allowance) ended on 31 March 2023. It has been replaced by full expensing, which gives companies a 100% first-year deduction on qualifying plant and machinery, including solar panels. Full expensing was made permanent in the Autumn Statement 2023.
Are solar panels exempt from business rates?
No, solar panels on commercial property are not exempt from business rates. The VOA may increase the rateable value of your property to reflect the solar installation. However, the increase is usually modest, and Small Business Rate Relief (for properties with rateable value under £15,000) may offset any increase entirely.
Related Guides
Solar Panel Costs
Full cost breakdown and payback periods.
Solar Incentives
0% VAT, Smart Export Guarantee, ECO4, and business capital allowances.
Commercial Solar
Solar panels for UK businesses: costs, capital allowances, and ROI.
Are Solar Panels Worth It?
Honest pros, cons, and payback analysis for UK homes.
Sources
- HMRC — VAT on Energy-Saving Materials (Notice 708/6) — gov.uk
- HMRC — Capital Allowances: Plant and Machinery — gov.uk
- HMRC — Full Expensing Guidance — gov.uk
- Ofgem — Smart Export Guarantee — ofgem.gov.uk
- Valuation Office Agency — Business Rates and Solar Panels — gov.uk
- GOV.UK — Private Residence Relief for Capital Gains Tax — gov.uk
Last updated: April 2026
Fact-checked by John Rooney, Solar Energy Editor. Editorial policy
John Rooney is the founder of Solar Info and has been covering the UK solar energy market since 2023. He fact-checks all content against official MCS and Ofgem data and maintains relationships with MCS-certified installers across the UK.
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