Property Alert – Capital Allowances – are you missing out?
HMRC has recently published the results of its review of the capital allowances regime. One of the key objectives of the review was to see if the regime could be simplified. They concluded that it couldn’t. So how can businesses like yours ensure they don’t miss out on the allowances that lead to reduced corporate or income taxes payable? A little knowledge – and calling on professionals to help – can make a big difference.
What you need to know:
- Capital allowances are available to both investors and occupiers of property. Limited companies, individuals and offshore investors are all eligible.
- Plant, machinery and other equipment are all assets on which to consider making a claim. If eligible, 100% of the cost can be claimed, in some instances in the year of purchase. For other assets, the deduction is spread over several years.
- Allowances can be claimed on items such as furniture, carpet tiles, telephone systems, security systems, moveable partitions and fire alarms. These assets are treated as “main rate pool” assets and a deduction of 18% of the cost can be claimed each year, on a reducing balance basis (ie 18% of the cost less allowances claimed to date).
- Assets that are integral to a building, such as lifts, escalators, hot water systems, electrical lighting, air conditioning and ventilation are defined as “special rate pool” assets. A deduction of 8% of the cost can be claimed each year, on a reducing balance basis (ie 8% of the cost less allowances claimed to date).
- Energy-efficient assets (as defined by HMRC), which include energy and water technologies, qualify for a 100% enhanced capital allowance. All expenditure on these assets can be claimed in the year of expenditure which can generate huge tax savings.
You can achieve significant savings in this area of tax. However the rules are complex, and often submitted claims do not include all qualifying expenditure that can be claimed. Furthermore, failure to claim allowances on integral fixtures within a building (or at least include expenditure within the special rate pool) and losing track of expenditure in this area will potentially compromise the ability of a future purchaser to claim allowances and give rise to complications on sale of the building.
Planning a refurbishment, fit-out or development
Ask your contractors to draw up a capital allowances report to ensure that nothing is missed. Alternatively, appoint a capital allowances specialist to do this as part of a review of the site/work in progress.
Already bought a property
You may be able to claim capital allowances on that property. If you think you may have missed out, speak to your accountant and assess whether you can make a claim.
Planning to buy a property
If you’re considering a purchase, consider future capital allowances. Ensure that the property enquiries include capital allowances and that there is certainty regarding such entitlement. This ensures that this doesn’t become a negotiating point later in the transaction.
It’s a complex area, so a quick no-obligation chat can often clarify your situation. Please don’t hesitate to contact your partner at Kingston Smith or a member of our property team if you wish to discuss this, or any property-related matter.