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Capital allowances: What you need to know

If you own the property your business is housed in, the chances are you might not have even heard of capital allowances. Or rather, you might have heard of them but youve certainly not explored just how much tax relief you may be entitled to.

Considering just how much tax relief is being lost year on year by commercial property owners, ignoring this area of tax legislation can be at the peril of anyone buying or selling a commercial property or any agents involved in the transaction.

The figure for this is staggering. Since last April, it’s been estimated that commercial property owners have lost a potential 1.6bn of tax relief.

What are capital allowances

Essentially, capital allowances are a form of tax-relief that can be claimed by commercial property owners incurring capital expenditure when building, buying or refitting a property or properties. 

Things that fall within the remit of a capital allowances assessment include lighting fixtures, heating, pipework and lifts. 

Putting it plainly, everything that would stay in a building if you tipped it upside down and shook it. And in terms of the money you can claim were not talking small change. The benefits can be substantial.

To give a recent example, take a hotel purchased for almost 15.5m. In identifying and successfully claiming capital allowances, this resulted in a benefit to the client of nearly 1.9m. 

Why do so many capital allowances go unclaimed

Firstly, HMRC understandably dont go shouting from the rooftops about just how much money people can claim. This means this area of tax law is fairly obscure.

And secondly, identifying capital allowances requires expertise. Its so specialist, that some of the countrys biggest accountants require the help of capital allowances specialists to comprehensively assess the tax relief available. 

Read more about capital allowances:

Capital allowances tax changes could cost you

Autumn Statement 2014: What is the Annual Investment Allowance

Business owners: Are you sitting on a massive tax relief windfall

While it may be easy to pinpoint the more obvious items on which to make a claim, such as curtains and carpets, it takes a much more thorough investigation of a property to unearth the less obvious fixtures and fittings such as lifts, escalators and security installations where more relief can be found.

Claiming capital allowances requires an almost forensic analysis of all the various elements of the property.

New legislation: another hurdle

Once identified, these figures would clearly represent substantial benefits to any business owner. 

But unfortunately, on top of the challenge of locating the items, there is now owing to recent changes in legislation an additional hurdle: the limit on the time in which capital allowances can be claimed.

As a result of the Finance Act 2012, changes were implemented in April 2014 which mean that any unclaimed capital allowances must now be identified and documented at the point at which a commercial property is bought or sold. Failing to do this risks the capital allowances being lost forever.

Further, the CPSE.1 document (Commercial Property Standard Enquiries) covering pre-contract enquiries for all commercial property transactions has been updated and now requires that a capital allowances adviser be named (section 32.10). 

The government is clearly keen to ensure that if these allowances are not claimed correctly at the appropriate time, the opportunity to do so will pass.

Commercial property owners are reluctant to embrace these changes, or they are unaware of them – and as a result, the amount of unclaimed tax relief is mounting up. Our analysis of HMRC property transaction figures shows that somewhere in the region of 1.6bn has been needlessly lost since the implementation of the Finance Act 2012.

The advice to anyone with a commercial property is clear and simple; make sure you check your capital allowances. If the time is taken to investigate this area correctly, the benefits can be extremely rewarding.

Mark Tighe is MD of Catax Solutions.


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