Capital Allowances on Commercial Property

Capital Allowances are the mechanism by which tax relief is obtained on the depreciation of assets and equipment and can result in substantial tax savings.  However, valuable claims can be overlooked if businesses don’t seek professional advice, especially when it comes to making claims in respect of property.

Here we consider what areas should be considered when undertaking property transactions and how Shorts can help with maximising Capital Allowances claims to reduce tax charges.

Construction

A large proportion of the construction costs, potentially up to 40%, of certain types of buildings may qualify for capital allowances. This can include making a claim on elements such as air conditioning systems, plumbing, lighting, etc. together with an element of preliminary costs, architects and structural engineering fees.

As an example, for a company paying corporation tax at 19%, a £1 million commercial property build could present a tax saving of up to £76,000 (£1 million x 40% x 19%). 

At Shorts, we assist businesses by undertaking a comprehensive survey of the building works to ascertain which components are eligible for Capital Allowances.  Without this detailed analysis, significant tax savings can be lost.

Buying

Similar to the construction costs, a proportion of the purchase price of a property will relate to fixtures eligible for capital allowances.  Again, this could typically be up to 40%.

However, a purchaser's claim may be restricted by the seller’s disposal value and so it is important to establish through due diligence investigations the correct entitlement and basis of a claim before completing the acquisition.

Selling

When the time comes to sell a property, it is important for the seller to have correctly addressed the capital allowances history as the buyer will most likely request this.  The buyer and seller may wish to enter into negotiations to agree a value of any fixtures qualifying for capital allowances.  Failure to do so could give rise to significant tax charges on the seller. 

It is, therefore, important to seek advice at this stage as it may be possible to secure an election whereby the seller could still retain significant allowances, depending on negotiations.

Structures and Buildings Allowance

The Structures and Buildings Allowance was introduced in the 2018 Budget and applies to new non-residential structures and buildings.  

Relief is provided on eligible construction costs incurred on or after 29 October 2018 at an annual rate of 2% on a straight-line basis.  This means that costs which historically may not have qualified for Capital Allowances may now do so.  Business owners should not assume that costs do not qualify just because they have not qualified in the past.

Our dedicated tax planning team regularly help clients with capital allowance queries.  If you require any advice, then begin your journey with us today; drop us a line and let's start talking about how we can save you tax.

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