Did you know that tax benefits are available on property and environmental improvements plus investments in plant & machinery?
When you buy, lease or improve a commercial property, you can offset some of that expenditure for tax purposes. This is not a tax loophole or avoidance scheme but is based on established UK statutory law dating back to 1878. Specialist surveyors with tax expertise are deployed to visit your property to uncover and identify allowable items.
What are Capital Allowances?
Capital allowances are a form of tax relief for capital expenditure incurred on commercial properties.
Capital allowances are given for expenditure on capital assets as a tax allowable expense, therefore reducing taxable profits and saving money. Capital allowances are available on all property types.
What types of property qualify?
There is no definitive list of which types of properties may qualify for a capital allowances claim but some of the most commonly claimed for include:
- Care & Nursing Homes, Hotels, Offices, Public Houses, Industrial Units, Retail Units including Shopping Centres, Petrol Stations, Car Showrooms, Caravan and Holiday Parks, Leisure facilities including Gyms, Restaurants, Furnished Holiday Lets, Children’s Nurseries and Golf Courses.
What Is claimable?
- The Capital Allowances Act 2001 refers to Plant & Machinery (P&M) but you will also hear reference to fixtures and integral features which are covered.
- Amongst the most commonly claimed for items are heating systems, electrical systems, hot & cold water systems, ventilation systems, sanitary ware and fire alarms. However anything which has a long term benefit for the trade may well be claimable.
- Structural elements are not normally claimable such as walls, stairways, roofs, doors and windows.
How to claim
Whether owned for investment or owner-occupation, all commercial premises contain ‘plant and machinery’ (as defined for tax purposes). These include fixtures such as electrical, water, heating and sanitary systems, and many other assets. When valued correctly, the money spent on these assets may be written-off for tax purposes, sheltering your business profits from taxation.
- The tax savings are typically between 15% and 40% of the purchase price of the property, this is dependent on the property type and the tax rate applicable to the owner.
- Claiming can result in a cash rebate from HM Revenue & Customs, or a reduction in current and future tax bills, or both;
- There is no time bar on claiming for money spent to buy or build property before April 2012.
- From 1st April 2014 all commercial property transactions will have to deal with Capital Allowances or risk financial loss to the buyer as well as for all future buyers &/or delaying the deal and potentially missing an opportunity to extract value on disposal for the seller.
Claiming capital allowances is an income or corporation tax adjustment only. It has no effect on your financial accounts, or the market value of your property. Nor does making a claim have any effect on your future capital gains tax bill should you ever decide to sell your property.
1. Free, no commitment assessment of Capital Allowance claim opportunity
2. Surveyor completes technical and financial evaluation
3. Claim report compiled and submitted to Accountant for filing with HMRC
4. Accountant completes the tax and CT600 work as normal
5. Claim is filed to HMRC by the Accountant
6. HMRC issue payment, with average time to cash from filing a claim around 3 months
The Technical Bit
What affects tax savings?
This will vary depending on a number of factors including:
- The purchase or construction cost of the property.
- The date of purchase, construction or development.
- The nature or type of the property.
- The rate of tax being paid.
- The claims history of the property.
The amount of overall tax benefit from making a claim usually runs into tens, if not hundreds of
thousands of pounds.
Most accountants and some surveyors do provide capital allowances advice. However, specialists have a different skill-set and more in depth and up-to-date understanding of capital allowances law and practice.
- The legislation is complex requiring the skills of a specialist firm to maximise any claim.
- Capital allowances claims are ideally suited to being dealt with on a stand-alone basis separately to other tax matters.
- Undertaking a capital allowances claim does not affect the Capital Gains Tax position on sale of the property but many accountants believe it does.
- Capital allowances law is particularly complicated when second-hand property is purchased.
- Accountants are normally unable to advise fully because calculating the claim requires an apportionment of the price between land, buildings and qualifying assets, which is a surveying-based tax valuation exercise which is outside most accountants expertise.
- Most surveyors do not have the requisite tax knowledge.
What is Land Remediation Relief?
Commercial property owners, investors and developers can claim 150% tax relief on remediating contaminated sites. This tax relief is only available to corporate tax payers.
What type of expenditure qualifies?
Land or buildings which are in a qualifying contaminated state, where there is a potential to cause relevant harm. The following are examples of contamination which would qualify for Land Remediation Relief:
– Japanese Knotweed
– Gas or toxic material
– Long term derelict land i.e. concrete structures
What affects tax savings?
An election must be made within 2 years of the year end in which expenditure is incurred
A deduction of 150% is provided so for every £100 of qualifying expenditure £150 is received in tax relief
If loss making a tax credit is payable at 16%
All costs associated with remediating the site or property are claimable
The claimant company cannot be responsible for the contamination or be a connected party