What are Capital Allowances?

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What areas count?

Capital Allowances are the hidden gem of UK corporation tax. If you have bought – or are planning to buy – a commercial property, there are costs embedded in the building that may be eligible for substantial tax relief.

Although Capital Allowances are not widely known or understood, they create a vital opportunity to offset some of the cost of business premises for everything from office buildings and doctors’ surgeries to hotels and restaurants.

While the cost of a building itself is not eligible, fixtures and integral features like air conditioning systems, fire alarms and fitted kitchens all qualify.

For building owners, the key is to establish the value of these features.

What’s it worth?

In our experience, integral features and fittings can be worth anything from 15% to 40% of a building’s value. For a £1 million building, that means a conservative estimate of £150,000. This translates to a potential £28,500 saving for a business paying corporation tax at 19%. For a higher-rate individual taxpayer, it could be worth £60,000.

Depending on the type of building, the value of eligible assets could be much higher.

At the 40% end of the scale, the tax relief on a £1 million building could be worth as much as £160,000 to a higher rate taxpayer.

You can’t claim capital allowances for the building itself, so doors, gates and mains water systems are not eligible. Only the features that are added. You also cannot claim for anything used only for entertainment, like a karaoke machine, or something you lease.

“Buyers and sellers have missed out on an opportunity to claim over £1.6 billion.”

The Law Society

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