Upcoming changes to Capital Allowances

If you own a commercial property with an original cost or cost plus improvements of over £300,000 there may be a claim to make. The same reliefs are available where there are costs on refurbishments or building a commercial property.

What is in it for me?

A Capital Allowances claim can reduce your current year’s tax liabilities for both a company and an individual. If the claim can be utilised in an earlier year this could create a tax repayment.

From our past experience of preparing reports and making claims we have identified that there can potentially be tax savings of around 25% of the actual spend incurred.

Tax Saving Opportunities on Property Transactions

Most accountants and tax advisers have some knowledge of the Capital Allowances regime, but few have experience of both the tax legislation and the property and construction issues essential for optimising claims. This can lead to opportunities being missed.

At Leonherman we have the experience and know how to undertake a review of your property.

Our capital allowances services are available to the owners of commercial property throughout the UK, Southern Ireland, owners of licensed Houses of Multiple Occupancy (HMO), and the owners of furnished holiday lets (FHLs) throughout the UK and the European Economic Area (EEA).

Understanding Capital Allowances

Whilst depreciation is applicable for UK accounting purposes, at present there is no ability to depreciate assets for tax purposes (tax depreciation). Instead the UK tax regime provides some relief on investment in capital assets through Capital Allowances, which are governed by the Capital Allowances Act 2001 (CAA2001).

Capital Allowances enable UK taxpayers to obtain tax relief for expenditure on certain fixed assets. However, they are not always straightforward. There are different forms and rates of allowances available and these can be changed unexpectedly in the annual Budget statement or in new Finance Acts.

Why now?

From 6th April 2014 the tax rules when acquiring a commercial property change. The new rules involve two key areas:

  • The need for the seller (if prior claims have been made) to put a disposal value for the plant and machinery fixtures claimed in their accounts on the sale of the property. This has to be agreed with the buyer in a section 198 or 199 election if the buyer is to continue to claim the capital allowances. This is called the ‘Fixed Value Requirement ‘, it is a mandatory rule even during the transitional period.
  • The second rule change is called the ‘Pooling Requirement’ and it involves the seller having to pool all available allowances and negotiating them with the buyer in order to then agree and meet the ‘Fixed Value Requirement’. This rule is not mandatory until after April 2014.

If you have an existing property that you use in your trade then you can still make a capital allowances claim under the old rules. This means that you can still make a claim if:

  • No previous claims
  • Partial claims; or
  • Full claims

Once you sell your property then you will need to follow the new rules.

How do I make an additional claim?

A capital allowances review would be undertaken by Leonherman to identify any available allowances that have not yet been claimed and once the additional claim has been submitted to HM Revenue & Customs (“HMRC”), you will receive the benefit in either your income tax (if you own the property in your own name or within a partnership) or your corporation tax (if you own the property in a company name).

No fees will be charged until you confirm you wish for us to carry out a full capital allowances review on your behalf.

For a free consultation, please contact: peterb@leonherman.co.uk or ruh@leoneherman.co.uk