Five Things You May Not Know About Capital Allowances
It is estimated that more than 50% of capital allowances available on commercial properties are not claimed. The most common form of capital allowances found in commercial property are those relating to fixed plant and machinery. This includes equipment such as heating, ventilation, hot water, air conditioning and other items which cannot be removed when the building is sold.
To qualify for this tax relief, you must be subject to UK tax and have either:
- Bought a commercial building second-hand;
- Be planning on buying a commercial building; or
- Be refurbishing, extending, fitting-out or building a new commercial building
This you may know, but there are a number of little-known benefits which may surprise you.
- Historical claims are allowable
Unlike other tax reliefs, with capital allowances there is no deadline for making a claim. As long as the asset is still in existence for the purpose of its trade, and is still owned, you are entitled to claim on the expenditure you have historically incurred. You can claim these allowances in any open period. Our multidisciplinary team combining tax, legal and surveying professionals, will undertake the required due diligence to ensure your claim is maximised, and perfectly in line with the rules set by HMRC. We provide free reviews to assess the scope of the claim and the benefit of the tax saving to you.
- Capital allowances are not lost when you sell
The UK is one of the only jurisdictions in the world where capital allowances on the sale of a commercial property are retained. In many other jurisdictions, a clawback of the claimed allowances is imposed. Providing the SPA is structured properly, capital allowances claimed in the UK are kept, even when the asset is sold. So if you identify £1m of qualifying expenditure during your hold period, which produces a tax saving of circa £190k (assuming limited company ownership) then as long as the SPA is structured correctly when you sell, you will keep all of those allowances without suffering any negative tax consequence on sale.
- You don’t have to own the building to benefit from capital allowances
As long as you have a legal interest in the property at the time you incurred the capital expenditure then you are entitled to claim the capital allowances and benefit from the tax savings generated. You may not own the freehold property but you may be leasing the premises for a period of time. For example, where a retailer or a restaurant is leasing a unit, all the expenditure incurred by the leaseholder in fitting out the property to make it fit for purpose will be analysed for capital allowances.
- Now the structural box qualifies too!
Historically, the shell of a building would not attract capital allowances. We used to explain that if you tipped the property upside down and gave it a good shake, the qualifying items would be those items that fell out. However, since October 2018 a new allowance was introduced, known as the Structures and Buildings Allowance (SBA). At just 2% per year, it’s a slow burner, but it does bring the UK into line with many other developed nations. To qualify for the new relief, construction contracts need to have been entered into on or after 29 October 2018.
- You can claim capital allowances on serviced apartments
Capital allowances are not available for plant and machinery in domestic dwelling houses. This extends to student accommodation, such as Houses in Multiple Occupancy (HMOs) that include individual study bedrooms with communal kitchens and lounges. These are classed as domestic dwellings, with no capital allowances available. However, contrast this with common, non-domestic dwelling areas (such as entrance halls, lifts and gated areas) which serve a number of apartments and managed by a third party for maintenance and repair, will often contain plant and machinery items potentially eligible for capital allowances. These areas are commonly found in serviced apartments and may present significant capital allowance opportunities.