Capital Allowances

Who can claim?

Any commercial property owner. A sole trader, a partnership, a Limited Company – basically any legal tax paying entity that owns a commercial property. It’s your legal right to claim rather than a privilege!

What qualifies?

Every element of a building may qualify for some form of allowances, but not all allowances are equal. The most generous allowances relate to machinery, furniture, equipment, computers, as well as the integral features within the property such as lighting, fire alarms, electrics, water systems to name a few. To unlock the most value, expenditure on plant & machinery within the property needs to be separated from structural spend, which offers relief at the slowest rate.

When are capital allowances available?

Capital allowances are available whenever a person or business incurs capital expenditure on purchasing, constructing, refurbishing, extending or otherwise improving commercial property.

Even if these events happened a number of years ago, it may still be possible to go back and revisit the potential for a capital allowances claim.

How are capital allowances offset?

Capital allowances are offset against the profits of the trade or property business that the asset is used for. The timing of the relief can vary based on the allowances available and the person/company claiming. However, many enhanced and accelerated reliefs are available, typically allowing some or all of the tax relief to arise in the year of spend. Where capital allowances deductions create a loss, this loss can often be group relieved, or carried back or forwards into other periods.

What are the timescales?

There is no time limit on claiming capital allowances. So long as you still own and use the relevant assets in the business, a capital allowances claim can be included in the earliest available tax return.

However, the most generous reliefs such as the Annual Investment Allowance (AIA) and the Super Deduction must be claimed in the year that the expenditure is incurred. You will have 2 years from the end of an accounting period to make an enhanced claim for expenditure incurred in that period. After that the tax return for the period may not be amended, unless HMRC has an ongoing enquiry into the period.

PROPERTY PURCHASES

If you have purchased a property to use commercially, up to 40% of the of the purchase price may qualify for allowances. Entitlement depends on the property history. We will review your property’s ownership and capital allowances history as part of a free consultation, to identify whether the opportunity to claim exists. If so, we can undertake a survey and valuation exercise to claim the tax relief available on the purchase.

If the claim is completed within 2 years of the end of the accounting period where the spend was incurred, the tax relief may arise immediately through use of the Annual Investment Allowances.

IMPROVEMENTS TO PROPERTY

Typically accountants will identify and claim allowances on a business’s routine expenditure on equipment, vehicles and computers in the normal course of their work. However where more significant expenditure has been incurred on a larger capital project, identifying the allowances available can be a more intricate and complex exercise.

We can help maximise the allowances arising from such expenditure through detailed analysis of the costs and works undertaken. We can obtain and analyse detailed cost information, liaise with contractors on the nuances of the project, make assessments or valuation where information is unavailable, and review and advise on contracts in order to identify entitlement to claim the most generous reliefs.

WHAT ABOUT RESEARCH & DEVELOPMENT ALLOWANCES?

As outlined here the R&D tax credit is available on revenue expenditure rather than capital expenditure. However, a rarely claimed capital allowance for expenditure incurred on R&D related capital expenditure exists. Known as Research and Development Allowances (RDAs), the pool gives an uncapped 100% first year allowance.

The 100% first year allowance offered by the RDA is on par with the Annual Investment Allowance (AIA), except with two additional benefits:

• Firstly RDAs are uncapped while the AIA is capped at £1m per group per year
• Secondly and more importantly, AIA is only available on plant & machinery expenditure while RDAs are available on the structure of the property as well, where the property is to be used for R&D. In the absence of the RDA, structural spend would only offer relief at 3% per annum. This represents a significant acceleration of the relief, receiving the benefit immediately instead of over 33 years.

A company may have an RDA claim if it has:

• Built, extended or refurbished R&D facilities.
• Invested in plant, machinery, fixtures, or fittings to support R&D activities.
• Incurred expenditure on providing facilities or assets used by employees carrying on research and development.

WILL CAPITAL ALLOWANCES IMPACT THE CAPITAL GAINS CALCULATIONS WHEN I DISPOSE OF THE PROPERTY?

No, for the majority of allowances, savings achieved by claiming will not be cancelled out later by an increased chargeable gain. It is not necessary to deduct any capital allowances from the cost of an asset for capital gains purposes.

There is one exception to the above: deductions arising from Structures & Buildings Allowances (SBAs) are clawed back on disposal, however these are by far the least attractive allowances of the reliefs available. The plant & machinery allowances and enhanced reliefs do not interact with the CGT calculation at all.

Can I claim capital allowances on a furnished holiday letting?

Yes! Capital allowances can be claimed on items such as chairs, beds, cupboards, TVs and lamps. These are obvious moveable items that are usually claimed. What is not always appreciated is the ability to claim capital allowances on the “integral features” which would include items such as the heating, electrics and plumbing.

As a rule of thumb, these integral features can often amount to between 10% and 30% of a property when purchased. This percentage will be at the upper range when there are items such as air conditioning and a swimming pool.

How do I know my property qualifies as a furnished holiday letting?

It must be;

1. situated in either the UK or Europe
2. it must be furnished
3. it must be commercially let with an intention to make a profit
4. it must be available for letting for at least 210 days a year
5. it must be let to the public for at least 105 days in the year.

The rules are complex and it is not possible to count days the property is let to friends or relatives at zero or a reduced rate. It is also not possible to count longer-term lets of more than 31 days, unless the 31 days is exceeded because of unforeseen circumstances.