Time to invest!? If you’re constructing, extending or renovating your commercial property; here’s why now is a good time!

Capital allowances tax relief enables commercial property owners to obtain tax relief on incurred capital expenditure. Qualifying commercial property includes shops, hotels, pubs, factories, industrial units, doctors surgeries to name just a few.

Given that Covid-19 is costing the UK economy so much, it is pleasing to be able to report positive and welcome changes to capital allowances, even if only in the short term.   


The Super Deduction

A First Year Allowance (FYA) is available for expenditure incurred by companies (although not property businesses) on new plant and machinery (P&M).

The expenditure must be incurred between 1st April 2021 and 31st March 2023 under a contract entered in to after 3rd March 2021.

Expenditure on General Pool P&M will attract the FYA of 130% (a Super Deduction). Assets which would ordinarily be written down at just 18% per annum. Assets within this context include fire alarm systems, security systems and carpet flooring.

Expenditure on Special Rate Pool P&M will receive a 50% FYA (a SR Allowance). Assets which ordinarily would be written down at just 6% per annum. This expenditure includes assets such as, lifts, heating and cooling systems, and solar shading.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.


Annual Investment Allowance (AIA)

The £1million AIA will remain in place until 31st December 2021 and will return to £200,000 thereafter.


The calculations

As a comparative, the 130% super deduction and the 50% FYA is compared below to the pre-budget write-downs:

Post budget calculation
Main rate pool (130% usually 18%) spend of £2m and special rate pool (50% usually 6%) spend of £1m, provides a first year tax saving of £594k (£2m x 130% x19%) + £1m x 50% x 6% x 19%) with a future tax saving of £89k.

Pre budget calculation
Based on the same expenditure figures above, the pre-budget tax saving in the first year would be £258k (£2m x 18% x 19%) + (£1m x 100% x19%) with a future tax saving of £311k.

You will see that the Annual Investment Allowance (AIA) has been used against the special rate expenditure in the pre-budget calculation. Despite this, the post budget calculation provides a much faster and greater amount of total tax relief on the same incurred expenditure.


Here to help

With these invaluable incentives currently in place, it’s perhaps never been a better time to invest.

Please get in touch if you are interested to hear more, or if you have any investment projects in the pipeline - we’d be delighted to help. As specialists we are able to segregate new expenditure and also unlock unclaimed historic expenditure to achieve the full extent of available tax savings in your property portfolios.

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