Businesses in the United Kingdom are entitled to claim capital allowances to reduce the Corporation or Income Tax payable on profits.
Capital allowances are claimed on certain purchases or investments under the Capital Allowances Act 2001.
Capital allowances are available on plant and machinery, certain types of buildings - including converting space above commercial premises to flats for renting - and research and development facilities and equipment.
The plant and machinery is claimed on the second fix (all the work after plastering to the finished building).
Under Revenue & Customs rules, when owners spend money buying or improving a property they can offset some of the expenditure against profits of general income. While most firms are aware they can offset the cost of plants and machinery bought for work, few realise they may be able to claim capital allowances on commercial premises they own. However where a capital allowances claim has been made on a property a new purchaser can only make another claim valuing the plant and machinery at the same rate as claimed previously. There is a popular misconception amongst people even in the capital allowances claims field that a secondary claim is not possible at all. Also further claims can be made on a property where it is extended or re-developed but only on those new elements of plant and machinery introduced to the building.
The amount of the allowance depends on what you're claiming for. In some cases, the rates are different in the year you make the purchase from those in subsequent years.
You can claim capital allowances on:
Writing down allowance, in United Kingdom Taxation, is the annual rate at which capital allowances can be claimed. This rate is reduced or extended if the chargeable period is shorter or longer than one year.
The writing down allowance is the rate which applies in the absence of initial or first year allowances. The rate applies on a straight line basis for industrial buildings, hotels, agricultural and forestry buildings and works. A reducing balance basis is used for all other assets.
Total writing down allowances may not exceed the balance of expenditure after deducting initial or first year allowances.
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Capital allowance reliefs can be set against the client’s taxable profits reducing the amount payable. Companies pay tax at 21% or 28%, whilst individuals pay tax at 20%, 40% or 50%. Please note as it is an allowance against taxable profit, you have to be a tax payer to benefit, therefore this does not normally apply to property owned in SIPPS or by charities and trusts. Allowances are generated when a business client builds or acquires commercial property. The amount of plant contained within the build or acquired property is the key to maximising the relief.
The claim should be considered as an effective discount and cash contribution to the construction cost or purchase price. The claim provides a tax saving that accrues over time. It is possible to claim allowances on investment properties but plant let in a “dwelling house” is excluded. Blocks of flats, halls of residence etc will therefore qualify.
For property that is being acquired, the specialist can apportion the purchase price under a recognised HMRC formula, and this is where the inherent property skill can maximise the claim with optimal costing of the plant contained within the property