If you own commercial property, either as an investor or owner occupier; within a corporate entity or as an individual; then the chances are you are amongst the 90% of property owners who have either under claimed or never made a claim for capital allowance tax relief, a relief that you are legally entitled to.
Capital Allowance tax relief is a right and not claiming it represents a real loss of cash and revenue; it is a voluntary claim, complex in nature and therefore, in most cases, either missed or not maximised. It is essential that any claim is managed professionally and by specialists.
Capital Allowances are a relief offset against the highest level of income or corporation tax payable. The allowance is provided against capital expenditure made on a wide range of plant and machinery contained strength in partnership within the fabric of the property that you own or intend to purchase.
The real revenue opportunity lies not only in assessing the level of entitlement on current and future property transactions but also in establishing the entitlement to relief on historical acquisitions and refurbishments on commercial property.
Many individuals and businesses buy properties and do not realise they can claim capital allowance relief on these acquisitions – in some cases where there is a high plant and machinery content, up to 40% of the purchase price can qualify for tax relief.
How does it work?
Capital allowance claims are a very specialist area of tax planning and require a rare combination of tax knowledge and surveying skills in order to correctly identify and maximise the client’s entitlement. In general, most accountancy practices do not retain the services of specialist surveyors and therefore the opportunity is often missed or not maximised. In many cases the accountant only finds out that a property has been purchased after the acquisition has taken place.
Following a survey of the property, the specialists are able to identify how much of the original purchase price and/or refurbishment costs can be apportioned to plant and machinery within the property. In broad terms, up to one third of a property’s purchase price can be apportioned to plant and machinery resulting in the equivalent of a 10% reduction in the real purchase price of the property on the basis of a successful Capital Allowance claim.
On receipt of basic information and after carrying out a ‘desk top’ evaluation, specialist advisors in this tax planning sector will arrange a site visit at no cost to you. If the specialist firm identifies grounds for making a viable claim for capital allowances then they will discuss terms of business and will formally engage with you on the basis that a fee will be charged based upon a percentage of the savings generated or a fixed fee if preferred.
The specialist will carry out a full site survey, collect and collate all of the necessary paperwork with the minimum of disruption to you or your advisors, delivering a detailed claim report for presentation to HMRC by your accountant or on your behalf; generating a tax repayment and/or future tax savings.
The specialist’s fee is payable on completion of the claim in which tax savings have been identified.
Managing cash flow – We all know how vital this is to our businesses and revenues especially when economic conditions remain so challenging. Correctly claiming capital allowances will result in either less tax being paid on the next return or allow you to claim a tax repayment.
The service is cost effective – The specialist fee is a percentage of the tax savings generated – therefore it is more than self-funding as it will normally generate cash for you after the fee is paid – no savings, no fees – simple!
Hassle free -The specialist will carry out all of the work and deliver a fully documented capital allowance claim, liaising directly with your accountant if required. No need to use up your time or your accountants time which could be expensive regardless of a successful claim.
Capital allowance reliefs can be set against the client’s taxable profits reducing the amount payable. Companies pay tax at 21% or 28%, whilst individuals pay tax at 20%, 40% or 50%. Please note as it is an allowance against taxable profit, you have to be a tax payer to benefit, therefore this does not normally apply to property owned in SIPPS or by charities and trusts.
Allowances are generated when a business client builds or acquires commercial property. The amount of plant contained within the build or acquired property is the key to maximising the relief.
The claim should be considered as an effective discount and cash contribution to the construction cost or purchase price. The claim provides a tax saving that accrues over time. It is possible to claim allowances on investment properties but plant let in a “dwelling house” is excluded. Blocks of flats, halls of residence etc will therefore qualify.
For property that is being acquired, the specialist can apportion the purchase price under a recognised HMRC formula, and this is where the inherent property skill can maximise the claim with optimal costing of the plant contained within the property.
Section 198 election – a potential trap
Commercially, it is imperative that you consider capital allowances during a property acquisition. It is the buyer’s right to acquire the capital allowances for the plant within the property, however this can be lost if a S198 election is agreed between vendor and purchaser. This becomes highly material when the relief can be worth up to 10% of the purchase price.
This is the ideal time to involve the tax specialist in contract negotiations with your solicitor – there are real cash savings to be made with just a little forethought and planning.
Important exceptions to claiming Capital Allowances Relief
This relief is not available in the following circumstances;
The buyer is a trader i.e. property developer. This is because the expenditure is on trading account and not being held as a long term asset.
Buyer is a non tax paying entity – trust, charity etc
Buyer is unlikely to be paying tax
How do I identify whether Capital Allowance relief is applicable to me?
If you own or intend to purchase commercial property, spending more than ?150,000 within the following property sectors then there is a strong probability of a successful Capital Allowance claim being made:
Healthcare – care homes, surgeries etc
Leisure – pubs, hotels, restaurants
Offices, retail, industrial units etc
Claims can be made retrospectively; specialists have successfully claimed on
property purchased up to 6 years ago.
Capital Allowance Planning is about real cash savings that would otherwise be paid to
HMRC – there are only two outcomes to a successful claim – less tax paid in the future
and/or a tax rebate
No downside to you, no fee charged if savings cannot be identified and you always keep
the lion’s share of the tax saving
Successful claims boost tax yield for investment properties