October 29th, 2012 / Insight posted in

Tax allowances pay for fixtures

HD writes: I am a wholesaler of electrical components. To meet my expansion needs, I am buying a freehold interest in a newly constructed building for £1.2m. It has already been fitted out for storage space and offices. Had my company fitted out the building, I would have expected to get tax allowances for the cost of this. Will I be able to claim capital allowance on the equivalent amount of the £1.2m?

You should be able to claim capital allowances on part of the capital spending, writes Jon Sutcliffe, Partner at Kingston Smith LLP. Part of the cost will pertain to land and buildings. Some of the costs, however, will relate to integral fixtures, and others to loose fixtures such as storage racks, cupboards, cookers, kitchen equipment and so on. Integral fixtures include electrical systems (lighting falls into this), water supplies, heating systems, lifts and eternal solar shading.

For both integral fixtures and loose fixtures, you can claim a 100% annual investment allowance on the first £100,000 of expenditure incurred in the year (this will fall to £25,000 from 1 April, 2012). If your business is part of a group of companies, then the annual investment allowance must be split across the group.

Once your have claimed the annual investment allowance, you can claim an annual writing-down allowance. On integral fixtures, you can claim 10% (8% from 1 April, 2012) and on loose fixtures, the allowance is 20% (18% from 1 April, 2012).

The appropriate split between the ineligible assets, the integral fixtures and the loose fixtures can often be obtained from the builder’s schedule of works. Alternatively, you can engage a chartered surveyor to carry out a review and provide an estimated split between the various categories.

Given the changes in rates from next April, we would recommend that you buy the buildings sooner rather than later to maximise the tax benefits.