Businesses that bought equipment used to claim "wear and tear" by classes at reducing-balance rates. If you still work from a table with Class I to Class IV, it is out of date. The Income Tax Act now gives an investment allowance, set out in the Second Schedule, with straight-line rates by type of asset. This article summarises the current rates from the Act as consolidated in mid-2026 and what the change means in practice. Amendments to individual lines have been made in recent Finance Acts, so earlier years may differ.
The old way versus the new way
Old: assets were put in a class, and the allowance each year was a percentage of the written-down value, which meant the deduction shrank every year and never quite reached zero.
New: each type of asset has a fixed rate applied to the cost, so the same amount is deducted every year until the cost is used up. For assets with a first-year rate, the first-year share is deducted first and the rest is spread over later years.
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The current rates
| Asset | Rate |
|---|---|
| Motor vehicles and heavy earth-moving equipment | 25% a year |
| Computers, hardware, software, calculators, copiers | 25% a year |
| Furniture and fittings | 10% a year |
| Telecommunications equipment | 10% a year |
| Other machinery | 10% a year |
| Commercial buildings | 10% a year |
| Industrial buildings | 10% a year |
| Educational buildings and student hostels | 10% a year |
| Machinery used for manufacture, hospital equipment, ships and aircraft | 50% in the first year of use, then 25% a year of the rest |
| Hotel, manufacturing and hospital buildings | 50% in the first year of use, then 25% a year of the rest |
| Farm works | 50% in the first year of use, then 25% a year of the rest |
A computer costing KES 100,000 earns KES 25,000 a year for four years. A manufacturing machine costing KES 1,000,000 earns KES 500,000 in the first year, then KES 125,000 a year for four years. Use the capital allowances calculator to run your own assets.
The higher first-year rate
The first-year rate for hotels, manufacturing buildings, hospital buildings and machinery used for manufacture rises to 100 percent when the investment in the year outside Nairobi City and Mombasa counties is at least KES 250 million, when cumulative investment over three years outside those counties reaches KES 1 billion, or when the investment is in a special economic zone. The investment deduction calculator tests the amount and location, and the earlier 150 percent rule no longer appears in the Act. Read the old rule's history in the calculator's page.
What does not qualify
Land does not earn allowances. Residential buildings are not on the list, so a landlord cannot claim a building allowance on a house, although furniture and equipment in a let property qualify. Assets used partly for private purposes need an apportionment. Passenger vehicles may be subject to other restrictions, so check before claiming.
Selling an asset
If you sell an item for more than its remaining value, the excess is treated as a trading receipt, and if you sell for less, the shortfall is a trading loss. Keep the register up to date: fixed assets and capital allowances explained and the fixed asset register.
Effects on your tax
- Smaller early allowances for vehicles and equipment compared with some reducing-balance rates, but certain. A 25 percent straight-line allowance deducts the whole cost over four years.
- Better planning. You can compute the deduction for each asset for its whole life using the depreciation schedule workbook.
- Forecasting tax. Use the corporation tax calculator and the tax provision and instalment forecast to see how allowances change profit and instalments.
For landlords
Landlords on Monthly Rental Income tax cannot claim allowances because MRI is charged on gross rent. Those on annual tax can claim them on qualifying equipment: see repairs versus improvements and deductible expenses for landlords.
What to do now
- Re-check your asset register against the new rates.
- Make sure each asset has a category, cost and date first used.
- Remove any reliance on class tables.
- Re-run your forecast for the next year.
- Ask your accountant how transitional items, assets bought under the old rules, are treated in your case.
Frequently asked questions
Does the new rule apply to assets I already own? Transitional rules decide how remaining balances on older assets are treated. Ask your accountant, as the answer depends on when the asset was bought.
Is the first-year rate automatic for manufacturers? It applies to the listed assets in the first year of use. You still need to show the asset qualifies as machinery or a building used for manufacture.
Can I choose to claim less? The Act says the allowance 'may be deducted'. Claiming less than the maximum is possible, but the unclaimed amount is not usually carried forward in the same way, so discuss it with an adviser.
What about software and subscriptions? Purchased software falls in the computer group. Subscriptions are expenses, not capital items.