What Are Capital Allowances?
Capital allowances enable commercial property owners in the UK to claim tax relief on qualifying capital expenditure.
Qualifying expenditure for a capital allowances claim includes plant and machinery, such as equipment, machinery, and business vehicles, as well as embedded capital allowances, which are essentially items that are embedded within commercial property and considered to be part of the building.
How Do Capital Allowances Work?
Companies and individuals that have invested capital in buying, building, fitting out, and/or improving commercial property are eligible to claim capital allowances on fixtures and features contained in the property.
Capital allowances are not given automatically; they must be claimed in a tax return. There is no time limit on claiming capital allowances if the asset is still owned and used within the trade. When acquiring a property or completing refurbishment projects, capital allowances should be considered at early stages to maximise tax savings potential.
In the UK, following the change in fixtures legislation in April 2014, during the sale of a commercial property, capital allowances must be considered well before the sale and purchase contract is agreed upon. If the issue of capital allowances is not addressed as part of the sale negotiation of a secondhand commercial property, the ability to take advantage of any unused allowances will be lost.
There is a two-year deadline from the date of completion to supply an HM Revenue and Customs (HMRC) officer with a completed Section 198 Election to either pass capital allowances to the new owner or for the prior owner to retain the benefit of them. Although this two-year window is useful to ensure capital allowances do not delay completion of the purchase, without the correct treatment in the contract, it can be difficult to settle the subject of capital allowances post-completion.
The benefit of making a capital allowances claim is a resulting cash rebate from a local tax authority (such as HMRC), a reduction in corporation tax bills, or both.
What Expenditure Qualifies for Capital Allowances?
Alongside plant and machinery, some examples of qualifying embedded fixtures and features include the following:
- Heating systems
- Plumbing systems
- Electrical systems and wiring
- Light fixtures
- Air conditioning and radiators
- Security systems
These items, which either were inherent to the property at the time of acquisition or have been subsequently installed, can make a critical difference to the value when selling the property.
Essentially, if a property were tipped upside down, everything remaining in the building could qualify for tax relief.
It is important to review historical expenditure, as capital allowances can be claimed on assets that are still owned—a specialist can help identify potential savings.
Is My Business Eligible for Capital Allowances?
To make a claim for capital allowances, the following must apply:
- You are the owner of a freehold/leasehold commercial property.
- The property is used for qualifying trade.
- Capital expenditure has been incurred, and you can provide proof of this.
- You are a UK taxpayer.
In the UK, capital allowances are also available for a property type known as a furnished holiday let (FHL).
How Do I Make a Claim for Capital Allowances?
In the UK, all commercial property owners that are taxpayers may be eligible to claim capital allowances tax relief. As listed above, eligibility depends on several criteria, and assessing this is complicated; however, we can take this stress off your hands. Our team of experts is here to help you determine if you have unused capital allowances hiding in your property.
As a matter of course, accountants will identify plant and machinery expenditures, such as desks, chairs, and computers. However, the fixtures and features that are embedded within the property and are essential for a business to carry out its trade are often not recorded. This leaves an allowance going unclaimed for a wealth of qualifying items, such as lifts, heating systems, and kitchens, for which a tax refund could be due.
If you’re wondering how to calculate a capital allowance claim, our tax relief specialists can undertake a thorough assessment of your commercial property via an onsite survey, drawing on our detailed understanding of capital allowances legislation, to identify any qualifying capital expenditure for a claim. If you’re in the process of buying or selling a property, we’ll ensure that capital allowances are addressed at the contract stage and that your claim is maximised before submitting to HMRC.
If you would like to discuss your eligibility or enquire about how we can support your business, simply fill out the form below and one of our experts will be in contact shortly.
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