Capital Allowances Under the Nigeria Tax Act, 2025 (First Schedule): A Practical, End-to-End Guide

By Bahas Books | bahasbooks.com

Capital allowances are the bridge between your fixed-asset investments and your corporate tax bill. This portion of the Nigeria Tax Act, 2025—drawn from the First Schedule—spells out when and how a company can claim capital allowances, what happens when assets are sold or destroyed, how leases and partnerships are treated, how to apportion values when assets are bundled, and which expenditures never qualify in the first place. Read this as a life-cycle manual: acquisition → use → temporary disuse → replacement → disposal, with rules for special situations along the way.

The rule that unlocks relief (Paragraph 6)

If, during a basis period for a year of assessment, your company incurs qualifying capital expenditure wholly and exclusively for the purposes of its trade or business, you are entitled to a capital allowance for each year the asset is used in the business. The rate you claim comes from Table I of the First Schedule and depends on the asset class.

Two refinements sit inside this starting rule. First, your computation schedule must record a notional 1% of qualifying capital expenditure. It is a statistical entry only; it neither increases nor reduces the claimable allowance. Second, where the basis period is shorter than 12 months—for example, in a start-up or cessation year—your capital allowance is pro-rated for that shorter period. These two touches preserve uniform record-keeping and ensure the time in use matches the relief you take.

The “still in use” condition (Paragraph 7)

To claim for a particular year, you must satisfy two points at the end of the basis period: you remain the owner of the asset, and the asset was used for the purposes of your trade or business in that period. Relief does not attach to assets that have already been sold, scrapped, or left idle.

Tracking the balance you have left to claim (Paragraph 8)

The law uses the term residue of qualifying expenditure to describe the cost remaining after all capital allowances previously granted on the asset. This residue is the ongoing tax base for future claims. It only exists for assets still in business use at the end of the relevant period—no use, no continuing residue.

When assets leave service: what counts as a “disposal” (Paragraph 9)

“Disposal” covers more than selling. It includes selling or transferring the relevant interest in a building or permanent work; the ending of a concession or the coming to an end of rights that allowed you to work a wasting source; the termination of a leasehold interest where the reversionary owner regains possession; and the demolition or destruction of a building or permanent work or simply ceasing to use it for business. It also covers plant, machinery, or fixtures that are sold, discarded, or cease to be used in the business, and assets on which mining expenditure was incurred that are sold or cease to be used for mining. A disposal triggers the balancing mechanics later explained through valuation rules.

Putting a number on a disposal (Paragraph 10)

At the disposal date, the asset’s value is normally the sale proceeds. If it was not sold, the value is what, in the tax authority’s opinion, the asset could have realised in an open-market sale on that date. Where you receive insurance or compensation because the asset was lost or destroyed, you treat the compensation as if it were sale proceeds.

There is targeted relief if you replace the lost or destroyed asset. If you deploy the compensation into a replacement, allowances shift to the new asset with adjustments: when compensation plus the old asset’s residue exceeds the cost of the replacement, allowances are limited to the residue of the old asset; when it is less, you may claim on the additional actual spend that exceeds compensation. For disposals between connected persons, value must reflect arm’s-length price to neutralise any attempt to engineer gains or losses.

Bundled prices and fair apportionment (Paragraph 11)

Assets are often bought or sold together. When a qualifying asset is bundled with a non-qualifying one (or multiple assets are priced in a single bargain), you must apportion the overall price on a just and reasonable basis to identify the value attributable to the qualifying asset. Separate invoices do not override this—substance prevails over form. The same fair-split principle applies when a relevant interest is sold together with other rights.

Part interests and joint ownership (Paragraph 12)

References to “an asset” include part of an asset or an undivided share. In joint interests, the tax authority may require a reasonable apportionment so each holder claims only its share of allowances.

Deemed “in use” during temporary downtime (Paragraph 13)

An asset counts as in use while temporarily out of use—for instance, during maintenance or seasonal shutdown. If an asset acquired for business was not yet used by the owner, it can still be treated as in use for the business on the date expenditure was incurred, subject to oversight: if an allowance is granted and the first actual use later turns out not to be for the trade, the authority can raise additional assessments to claw back the benefit. Prior approval of the tax authority is required to rely on this deeming provision.

Costs that never qualify (Paragraph 14)

Two exclusions matter. You cannot treat as qualifying capital expenditure any amount that has already been deducted as an ordinary expense under section 20. No double relief. And you cannot inflate the capital base by using a foreign-currency acquisition rate above the official market rate on the acquisition date; any excess is disallowed from the qualifying cost.

How leases interact with capital allowances (Paragraph 15)

If you lease an asset to someone else under an operating lease, the Schedule applies as though the relevant expenditure were incurred for the lessor’s or lessee’s trade, depending on context. If an asset is acquired for use by a hirer or lessee under a hire purchase or finance lease for the purposes of a trade or business carried on by the hirer or lessee, the hirer/lessee is deemed to be the owner for capital allowance purposes. For trade or business computations in this setting, the basis period is taken as the year immediately preceding the year of assessment.

Mixed business and private use (Paragraph 16)

Where an owner partly uses an asset for business, the allowance is apportioned on a reasonable basis to reflect business use only. If the tax authority believes your apportionment is not just or reasonable, it may adjust the figures having regard to all the circumstances and the intent of the Schedule.

Disposals that keep ownership in the same hands (Paragraph 17)

If you dispose of an asset in a way that you retain ownership—for example, certain restructurings—the law deems you to have acquired the asset immediately after disposal for a price equal to the residue of the qualifying expenditure at the disposal date. This keeps the capital allowance stream intact while preventing artificial step-ups or step-downs.

Professions and vocations are covered (Paragraph 18)

References to a “trade or business” include professions and vocations. The same relief framework applies whether you operate a factory, a clinic, or a law practice.

Partnerships: compute once, share later (Paragraph 19)

A partnership’s trade or business is treated as a single enterprise for capital allowance purposes. Allowances are computed as if the single enterprise performed the activities, then apportioned to partners in their profit-sharing ratio at the end of the basis period. If a partner joins or leaves during a basis period, the law treats the business as if it ceased and recommenced at that time, and the paragraph 17 rules apply to assets transferred to the “new” business. Recomputations can trigger additional assessments or repayments to give full effect to these mechanics, and where this paragraph conflicts with others, the tax authority may apply necessary modifications and prescribe rules to implement them.

“Allowance made,” claims, and carry-forward (Paragraphs 20–21)

A reference to an allowance made includes one that would have been made but for insufficient assessable profits in that year. You must claim an allowance to receive it, unless the authority decides that allowing it without a claim would be just and reasonable. If you do not claim in the year in which the asset was used for business, you may carry the claim forward to a subsequent period.

How the allowance bites into tax (Paragraph 22)

Capital allowances are deducted from the remainder of assessable profits or income for the relevant year. The amount of “remainder” is determined after giving full effect to the loss-restriction provisions that apply to companies and individuals. If there isn’t enough remainder in the year to absorb the allowance, the unrelieved balance carries forward under the Act’s rules, preserving the benefit for later years.

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Why this structure matters

This section of the First Schedule provides a complete operating map for capital allowances. It anchors relief to genuine business use, prevents double dipping through ordinary deductions or inflated FX rates, keeps values honest through arm’s-length and apportionment rules, and preserves relief through practical realities like temporary disuse, replacement after loss, leasing, partnership changes, and insufficient yearly profits. It aligns tax with economic substance so that the allowance you take mirrors the way your assets actually deliver value over time.

For accountants, CFOs, auditors, and tax managers, mastering these paragraphs means you can design asset policies, lease terms, replacement decisions, and disposal strategies that are both commercially sound and tax-efficient—without leaving relief on the table or risking adjustments. That is the point of capital allowances in the Nigeria Tax Act, 2025: predictable investment relief, delivered with discipline.

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