Capital Allowances

What are Capital Allowances?

Capital Allowances recognise expenditure incurred in the purchase of commercial properties and other assets as a tax allowable expense (unlike ‘depreciation’), reducing taxable profits and the associated tax liability; furthermore, claiming Capital Allowances does not increase future capital gains tax liability if the property is subsequently sold. However, recent legislative changes have placed even greater emphasis on both buyers and sellers of commercial property to review their Capital Allowance entitlement.

We have helped secure millions of £’s of tax relief via Capital Allowance claims for our clients. Our specialist expertise and knowledge of the Capital Allowance Act 2001 (CAA2001) ensures our clients benefit from the best advise possible across various property types:

Hotels, Care Homes, Dental Practices, GP Surgeries, Veterinary Practices, Offices, Industrial Units, Warehouses, Retail Units, Car Showrooms, Pubs, Restaurants, Petrol Stations, Students Lets, Holiday Lets.

Qualifying items have included:
Heating, Ventilation, Lighting, Electrical Installations, Hot/cold Water systems, Data Installations, Fire Doors, Security/CCTV, Signage, Sanitary Fittings, Telecoms, Lifts/Escalators, Flooring, Windows, Machinery 

Why are these items usually missed?

There is a misconception amongst businesses when it comes to claiming Capital Allowances in that most assume that their advisors will claim all relief due. However, when it comes to identifying embedded allowances within a commercial property, the process requires an in-depth room-by-room survey to identify qualifying items for the purposes of appropriately valuing them to claim Capital Allowances.

In our experience, we tend to find that accountants will usually claim for items where the fixed value of an asset is known, by either an invoice/receipt value which usually applies to ‘moveable’ items within the property. With items which are not ‘easily moveable’, the value is often more difficult to obtain, either because the items were inherent when the property was acquired or because they have been installed after acquisition by way of appointing a contractor to undertake refurbishment or improvement works to the property.

The Capital Allowance legislation has been refined over the years and the new rules which affect all commercial property transactions are:

2012 – Introduction of Fixed Value Requirement

Both the buyer and seller of a commercial property must agree and sign an s.198 election, confirming the value at which the fixtures are to be transferred for the purposes of a Capital Allowances claim, either at the point of sale or within two years of the transaction date.

2014 – Introduction of Pooling Requirement

The seller must ‘pool’ the value of all fixtures within the property being sold and notify HMRC by including this in their tax return. Only once this has been declared to HMRC is the buyer able to claim Capital Allowances on the acquisition.

These changes are very important and should be addressed by engaging a specialist Capital Allowances adviser to ensure the correct procedures and documents are in place. Unless addressed correctly, the buyer of the property may lose any entitlement to claim Capital Allowances tax relief for ever.

Other related reliefs

Capital Allowances provide relief by allowing for the deduction of expenditure incurred in acquiring ‘Plant & Machinery’ from your taxable profits.

Most types of Plant & Machinery can be deducted in full as part of the Annual Investment Allowance (AIA) for the period in question, currently legislated at £1,000,000 pa; capital assets which don’t qualify for AIA (or whose costs breach the £1,000,000 limit) may instead be deducted at either 8% pa or 18% pa, depending upon the nature of the asset.

In addition to the AIA threshold, certain environmentally-friendly asset types may qualify for 100% Enhanced Capital Allowances (ECA), whilst assets acquired in pursuit of qualifying Research & Development may attract Research & Development Allowances (RDA), also at 100%.

Structures and Building Allowance (SBA) was introduced in the 2018 Autumn Budget to provide a straight-line relief on eligible construction costs incurred for new non-residential structures and buildings.

SBA’s provide tax relief on eligible construction, renovation or conversion costs incurred on or after 29th October 2018 at an annual rate of 2% on a straight-line basis over a 50-year period, once trade has commenced in the building. The rate has been increased to 3% from April 2020.

Expenditure which can be claimed

Capital Allowances can be claimed for qualifying expenditure on items which are used in the business, often referred to as ‘Plant & Machinery’.

Plant and machinery includes:
What is it Worth?

£1m

Current Annual Investment
Allowance (AIA) limit

£65m

Total amount claimed
in the 2016-17 tax year

3 in 10

Ratio of companies not fully
claiming their CA entitlement

40%

Upto 40% of the purchase price identified
as qualifying for property acquisitions

65%

Upto 65% of the expenditure identified
as qualifying on fit-our/refurb spend

100%

Tax Relief available on qualifying ECA & RDA Expenditure