Commercial property transactions: there could be tax saving opportunities too
There’s a lot involved when you’re looking to purchase a commercial property. It’s certainly not just the price you offer to pay for the commercial property to consider, but the additional costs you incur on top too. For example, will there be any VAT due, and how much stamp duty is there to pay? Then, for the conveyancing work, there are the legal costs too.
The good news is there are potentially tax savings available, but they’re rarely ever spoken about! For all the outgoings you incur, it’s so important to consider where any available savings may be.
Capital allowances can generate extremely generous tax savings which are often missed in property transactions. It’s most important, therefore, for buyers and sellers to assess their entitlement and scope to claim capital allowances and avoid missing an opportunity.
Question
Have you purchased a commercial property in the last 2 years? And have you assessed your entitlement and scope to claim capital allowances? A quick and free capital allowances entitlement review could reveal significant value and estimate the savings to be made.
Capital allowances claims apply whether you own the property as an investment or use it in your trading business.
The opportunity
Capital allowances are a tax-deductible form of depreciation attracted by all those features contained within the fabric of a building which make the property fit for the purpose of its trade. For example, qualifying assets include; heating, lighting, electrics, water systems, machinery and much more.
These assets may equate to between 10 – 30% of the property purchase price. So, if you buy a property for £500,000, there’s potential for up to £150,000 of that price to qualify for capital allowances. A specialist will undertake a survey and valuation-based exercise to determine the value, produce a comprehensive report and facilitate the claim in the relevant tax return.
Such expenditure will offset taxable profits, the value of which will vary dependant upon the tax payers chargeable tax rate. A Corporation Tax rate of 25%, for example, would equate to tax savings of £37,500. The savings are significant.
The legal transaction
There are instances where you will need the cooperation of the vendor to agree the values and transfer the allowances from Vendor to Buyer as part of the legal transaction. In such cases, you should obtain early, specialist advice to avoid problems later. A good capital allowances specialist will never slow down the legal transaction; they will assess for scope, and assist to ensure the transaction is correctly structured to protect the availability of allowances. The detailed capital allowances exercise can then be completed following completion of the deal.
First entitlement
Moreover, there are instances, where, if you are the first entitled, there is no need for agreement between the parties, and this is determined by the historic ownership of the property. Integral features were first introduced by the Finance Act 2008, and so commercial properties owned prior to this date, will not previously have triggered an opportunity to claim on these qualifying assets. Therefore, where you are the first owner to purchase the property, since April 2008, you will have first entitlement to claim these qualifying assets. First entitlement may also be present when purchasing a property from a non-tax paying entity, like a pension or a charity.
In these circumstances, claims can be made retrospectively, without agreement of the parties and so a review of your property portfolio is essential to ensure nothing is being missed.
YesTax, often working in conjunction with your accountant, is happy to assist with free entitlement reviews to identify tax saving opportunities – we don’t need lots of information and it could be an extremely valuable exercise.
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