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Capital allowances

You may be unaware that your commercial property is holding thousands of pounds of unclaimed tax relief in the form of embedded capital allowances. These are allowances on items of plant and machinery and integral features such as air conditioning, wiring and plumbing. It is your statutory right – not tax avoidance or evasion – to claim these allowances. As long as you own a commercial property and pay UK tax then you are entitled to claim.

What are capital allowances?

When you buy long term assets for your business such as a property you cannot claim the expenditure for your profit and loss account. However based on the expenditure you may be able to claim capital allowances in accordance with the Capital Allowances Act 2001.

Capital allowances provide tax relief to deduct the cost of certain assets from taxable profits. This relief is generated by claims following capital expenditure on commercial property such as:

A) Purchase of an old or newly built property.

B) Construction of a new property.

C) Building alterations, extensions and refurbishments to a property.

D) The fit out of let property.

Capital allowances are available for all individuals and businesses that are UK tax payers.

The relief can be as much as 40% of the cost of a property and higher for alterations, extensions and refurbishments and, if you bought or undertook that expenditure in the last two years may well be all immediately available.

You do not need to wait until you are selling a property before you claim. In actual fact the earlier you claim the better as it increases the benefit to you.

A failure to deal with capital allowances properly could result in a complete loss of capital allowances for current and future tax payers who own the property. This is likely to negatively impact upon the market value of the property in the future.

Points to note

It is best practice to keep sufficiently detailed records of all capital expenditure on commercial property incurred during your period of ownership (these will be needed at the time of sale).

Any claims on qualifying fixtures must be correctly made to HMRC and a record kept.

When a property is sold the vendor must have pooled the expenditure or made a claim in order to make an election prior to sale.

When a property is sold a disposal value is required if a claim has been made in most cases.

The Seller has the opportunity to claim capital allowances before a property is sold at any time provided they meet the criteria to claim.

The Buyer must be made aware of any prior claims and agree on the apportionment of all plant and machinery fixtures in an election and this is most sensibly done at the point of exchange of Contracts.

If only part claimed, the value of unclaimed allowance will be negotiable at the point of sale.

Elections must be submitted to HMRC within the two year period of the sale date.

Failure to comply under the new rules or the requirements set out for making an election will render the claims invalid. The capital allowances will be lost if the timeframe is breached or if the election is not made.