The capital allowances regime offers significant tax savings on investment in certain property-related plant and machinery within commercial property and furnished holiday lettings businesses.
The Annual Investment Allowance (AIA) enables the cost of plant and machinery – including integral features of a building, such as electrical, heating and water systems, and fixtures, such as bathroom suites and fitted kitchens – to be completely offset against corporation tax, up to an annual threshold (£200,000 from 1st January 2016). Cars, items owned for another reason before the business started using them and items given to a business cannot be included, but may be covered by writing down allowances.
Expenditure above the AIA limit and certain other items may also be covered by writing down allowances, which are claimed as a percentage of expenditure over a period of time, and the regime also includes Enhanced Capital Allowances (ECAs), which provide a 100 per cent first year allowance, giving accelerated tax relief on capital expenditure on certain environmentally friendly equipment and technologies.
While the tax benefits can be significant, the complexity of the regime means that many owner-occupiers of commercial property or investors in commercial property miss out on valuable savings.
We can provide comprehensive advice on all aspects of capital allowances, including in situations where someone is buying a second-hand commercial property, i.e. not a new build.
Since April 2014, capital allowances have only been available if the past owner “pooled” qualifying expenditure for capital allowances, i.e. notified it to HM Revenue & Customs in a tax return. This means that if the previous owner failed to claim capital allowances, the entitlement will be lost for all future purchasers of the building. While certain tax planning steps can be taken to protect purchasers of commercial property after April 2014, they must take place before the purchase.
Contact us to find out more about how our capital allowance specialists can add particular value by working with other professionals, including architects, designers and procurement specialists – at the earliest stages of a property construction or renovation project. This joined up approach will assist in maximising the value of capital allowance reliefs from the outset, for example making the use of the ECA regime for accelerated reliefs on energy-efficient integral features.