Investors

Our clients

Owners

If you are a property investor or existing owner, you may be unaware that of the expenditure that you incur on purchasing, refurbishing, or building commercial property, there may be significant savings available through capital allowances.

The complexity of capital allowances may be an area you are not familiar with or simply something you prefer to leave with your Accountant. Whilst this is quite a common circumstance, you should be aware that a specialist may be able to get substantially better results for you and may even be able to suggest allowances you can claim that your accountant may overlook. When producing capital allowances claims on purchases/refurbishments, either the property has to be costed up or the existing cost information has to be analysed. This is only truly possible if you have a strong surveying/construction background, which accountants do not have.We at Wandsworth Consulting are dual-qualified in tax and quantity surveying and have worked for large surveying and accountancy practices for many years.

Existing property owners can look back at their original purchase of the property and any subsequent expenditure since, as there is no time limit on claiming capital allowances.

In our experience, generally, a claim made by your accountant, without the detailed knowledge of a specialist, may only be about 30-60% of what you could be entitled to claim. More surprisingly, in some cases, the opportunity to claim is being missed completely.

Purchasers

There are countless numbers of people who miss out on claiming capital allowances simply because they do not know that they are eligible to claim anything.

This is because, in many cases, the value of the allowances on a property acquisition will need to be calculated. To make the calculation you need to be able to identify what it would cost to rebuild the property and what the underlying land value is.  Once you have done that the process requires you to separate the eligible plant and machinery from the non-qualifying building and land, in accordance with the current regulations. Typically, this is not something your accountant can do; therefore you will need input from a capital allowances specialist.

Plant and machinery allowances

What constitutes plant and machinery will be largely dependent upon the type of business carried on and what the building contains when you acquire it.  Items that have previously been found to be qualifying in case law, includes items such as partitions, display equipment, TV aerials, hot water systems, alarm systems, welfare equipment and door handles to name but a few.

In general, the kind of items that will qualify in a purchased building will normally be ‘fixtures’ – items added to the structure of the building to make it functional.  Plant and machinery fixtures usually include the majority of the building’s mechanical and electrical services, as well as lifts, and sanitary appliances, but there are many others.

Capital allowances can provide significant benefits to purchasers of second-hand property. With increased cash flow due to reduced tax liabilities, clients are able to reinvest in other projects. Capital allowances claims on property acquisitions are potentially very lucrative with up to 40% of the property purchase price being available to the client in allowances to reduce their taxable profits.

Provided no other person has already made a claim for the plant and machinery items in a property, the new owner can claim them.  There are other tests to meet such as the expenditure must be capital and the purchaser must be carrying on a qualifying activity to be able to claim, but these are usually very easy to determine.

Capital Allowances are an incredibly valuable source of tax saving for anyone incurring capital expenditure on property. Whether buying, building or refurbishing commercial property, all clients should seek specialist advice in this area.

Patrick Knight(Wandsworth)

Wandsworth are standout advisors in this specialist area. Their advice greatly benefits our clients and further enhances our comprehensive range of services for building owners redeveloping their properties.

Sean Cleaver(Corep)

In cases where capital allowances have not been claimed by any past owner, the amount available will be based on a ‘just and reasonable apportionment’ of the purchase price paid, in accordance with Capital Allowances Act 2001, Section 562.  The apportionment must be made between three categories – the non-qualifying building or setting, the qualifying plant and machinery and the non-qualifying land value.  The apportionment is subject to restrictions if any historic claims have been made by former owners on items that are still in the building when it is sold.

Purchases made after April 2012 are subject to new rules. If the person that you acquire the property from was eligible to make a claim then you must now agree a value for the fixtures as part of the transaction value (this can still be done on an apportionment basis), but within 2 years of the transaction, you must both enter a joint election in accordance with s198 of the CAA 2001 to fix the value agreed or agree by some other means as set out in the new rules on what the value of the fixtures are.  In addition, in some cases, the vendor must have pooled this amount before the sale actually takes place.  So you can see that thought must be given to capital allowances before the transaction is completed if a capital allowances claim is to be maximised.

Taking the time to plan for tax, and subsequently making a detailed capital allowances claim will lead to significant savings for the client which could leave them with more to invest in other projects or properties.

Capital allowances on property purchases

As a Seller

If capital allowances are properly accounted for it can prove to be a significant bargaining tool in the sale of a property. The main advantages of accurate capital allowances guidance when selling a property are:

  • An increased asking price due to the level of benefit available and due to market availability and quantum of capital allowances to prospective buyers.
  • Improved the marketability of the property.
  • Potentially improved investment yields.
  • Ensured compliance with capital allowances legislation requirements; Failure to do so may result in financial loss to the buyer and delay the sale process.

This in turn is good for an agent as a higher property price means a higher fee for you and also this increased knowledge and guidance that you have provided for your client will improve your reputation in the marketplace generally.

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Claiming allowances when property changes hands:

Provided no other person has already made a claim for the Plant and machinery items in a property, the new owner can claim them.  There are other tests to meet such as the expenditure must be capital and the purchaser must be carrying on a qualifying activity to be able to claim, but these are usually very easy to determine.

In cases where capital allowances have not been claimed by any past owner, the amount available will be based on a ‘just and reasonable apportionment’ of the purchase price paid, in accordance with CAA 2001, Section 562 – (The purchase price to be apportioned can include any Stamp Duty Land Tax paid by the purchaser and any irrecoverable VAT).  The apportionment must be made between three categories – the non-qualifying building or setting, the qualifying plant and machinery and the non-qualifying land value.  The apportionment is subject to restrictions if any historic claims have been made by former owners on items that are still in the building when it is sold.

Purchases made after April 2014 are subject to new rules introduced back in 2012, and these new rules make things a little more complicated on purchases.  If the person that you acquire the property from was eligible to make a claim then you must now agree on a value for the fixtures as part of the transaction value (this can still be done on an apportionment basis), but within 2 years of the transaction, you must both enter a joint election in accordance with s198 of the Capital Allowances Act 2001 to fix the value agreed or agree by some other means as set out in the new rules on what the value of the fixtures are.  In addition, in some cases the vendor must have pooled this amount before the sale actually takes place.  So you can see that thought must be given to capital allowances before the transaction is completed if the capital allowances claim is to be valid.

The apportionment of the purchase price to plant and machinery fixtures may be substantial. HMRC has specific guidelines as to how this apportionment should be made, as well as having their own view on which items and expenditures actually constitute plant and machinery.

However, it is important to remember that HMRC guidance is just that, not legislation but just HMRC’s view of what the legislation intends.  It is very common for a debate about what specifically is plant and machinery or about how the legislation operates in any given scenario to take place with HMRC before a claim is settled and this dialogue should not be regarded as an indication that there is a problem with the claim being made.

Have any questions that you need answers for now?

Some frequently asked questions about capital allowances and property purchases.