Capital Allowances for UK Commercial Property

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Despite the limited tax breaks for UK commercial property owners or investors, many overlook the significant tax relief provided by capital allowances. This oversight often arises from unfamiliarity with the rules and regulations surrounding this relief.

What Are Capital Allowances?

Capital allowances offer tax relief for specific capital expenditure on certain buildings, fixtures, and chattels. Once qualified, these allowances can significantly reduce your taxable profits, and consequently, your tax bill.

However, there are prerequisites to claim these allowances. Once met, a substantial portion of the costs from construction, refurbishment, or property acquisition might be eligible for tax relief.

Types of Capital Allowances

Since 2011, claims on the structural aspects of a property, like floors or walls, are no longer valid. However, allowances for commercial properties still exist for:

  • Plant and machinery (currently at 18% pa).
  • Integral features like electrical systems, lifts, and air conditioning (available at 8% pa since April 2008).

Buying a Commercial Property

If you’re buying or have bought a commercial property, you might be eligible for capital allowances. The relief amount depends on the property’s historical ownership, not its age. Up to 50% of the purchase price might qualify for this relief.

However, recent legislative changes and the rush to finalise deals can lead to overlooked allowances. Responses to standard Commercial Property Enquiries often lack the details needed to determine potential allowances. This, combined with the urgency to finalise transactions and a lack of understanding, results in missed opportunities.

Key Rules to Remember

From April 2012, with full effect from April 2014, new rules were introduced:

  1. Fixed Value: Both seller and buyer must agree on the portion of the purchase price attributed to the building’s fixtures. This agreement must be reached within two years of purchase.
  2. Pooling Requirement: Since April 2014, sellers must have ‘pooled’ their expenditure on fixtures before selling.

Failure to meet these conditions means the HMRC will consider the value of acquired fixtures as zero, preventing any capital allowances claims.

Selling a Commercial Property

Sellers should also adhere to the above rules. If not, they might face balancing charges upon sale. Detailed records of pooled assets can streamline future sales and enhance property value for buyers.

Construction and Refurbishment Projects

By seeking advice early in a project, you can optimize capital allowances through strategic choices in construction components and contract terms. Depending on the project, 30% to 90% of expenses might qualify for tax relief.

General Guidelines on Capital Allowances

The exact capital allowances vary, but here’s a general guide:

  • Offices: 15%-30% for acquisitions, 15%-45% for new builds.
  • Retail: 2%-25% for acquisitions, 5%-40% for new builds.
  • Industrial: 2%-20% for acquisitions, 5%-24% for new builds.
  • Hotels: 15%-50% for both acquisitions and new builds.

(Note: These figures are general estimates.)

Capital allowances are a significant relief opportunity that many miss. Don’t miss out on these potential savings!