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CAs are available on the cost of acquiring, developing or upgrading non-domestic properties and helps reduce the effective tax rate paid on rents.
CAs are used to reduce the cost of owning property and remains a key consideration in determining whether to buy or to rent premises for their trade.
Whilst unable to claim directly themselves, non-taxpayers still incur significant qualifying expenditure that has a value to subsequent owners if the data is properly captured.
The three primary allowances are Plant and Machinery Allowances (PMA), Structures and Buildings Allowances (SBA) and Research & Development Allowances (RDA).
PMA eligible costs include assets such as heating and cooling systems, lighting and electrical systems, lifts and escalators, kitchens and bathrooms, fire alarms and security systems, among many other asset.
PMAs are currently very generous with 100% “full expensing” tax relief on new main pool PMA expenditure and a 50% first year allowance on all other PMA expenditure.
Each trade can claim a 100% first year Annual Investment Allowance (AIA) on any new plant and machinery assets purchased in a period up to a maximum of £1m.
A person is entitled to RDAs of 100% on the cost of new or acquired premises (excluding land) where they undertake R&D activities relating to their trade in those premises.
There are no time limits to making a claim. If you still own the asset in an open accounting period, then you are entitled to make a claim on any qualifying costs incurred up to that year end.
SBAs are claimed at 3% per annum on the cost of constructing or renovating a building or structure net of any PMA or LRR qualifying expenditure.
You can claim PMAs on property acquisitions but only if you have agreed a s.198 election value or no previous owner has been entitled to claim.
CAs are not available on expenditure incurred on the acquisition of land or for assets used in a dwelling-house. Common areas in build-to-rent and student accommodation excepted.
You must agree a disposal value for your PMAs and sign a s.198 Election with your buyer when you sell a building or risk having to repay the PMAs you have already claimed.
Claimants often fail to consider all the costs incurred on the provision of plant and machinery within a building such as eligible contract preliminaries, overheads and profit and professional fees.
Claimants are missing out on valuable tax relief on the electrical and cold-water systems within acquired properties where no previous owner has become entitled.
Claimants risk having to repay the cash saved on the CAs they have claimed during their ownership by failing to agree a s.198 Election value with their buyer on disposal.
Claimants often fail to realise that the value of SBAs claimed during their ownership are added to the sale proceeds on disposal meaning the allowances are effectively a timing benefit only.
Claimants often incorrectly claim SBAs on LRR qualifying costs resulting in a significant loss of tax relief and the risk of a successful challenge from HMRC.
CPSE answers are often erroneous or incomplete. Failure to undertake sufficient due diligence on the information provided can result in a significant loss of relief.
Landlords often overlook their ability to make a claim for CAs on expenditure incurred on a landlord’s contribution to a tenant’s fit out works. Contributions need to be pooled separately.
Companies sometimes fail to consider the rules relating to the commencement of a UK property business when determining the period in which a claim is made.
Sometimes agreements are made on capital allowances in heads of terms which are ill informed resulting in an unworkable and legally complex position.
RDAs are one of the most valuable tax reliefs available and yet remain significantly underclaimed. If your business undertakes R&D activities, and you own property, then an RDA claim should be considered.
Claims on plant and machinery within the common areas of apartment blocks are often overlooked because the dwelling-house exclusion is not fully understood.
Buyers often miss out on their ability to automatically inherit the tax written down value of a seller’s contribution allowances.
CAs are an essential tool in managing the tax affairs and cash flow requirements of property owners and investors and yet our experience shows that significant amounts of tax relief are being lost either because of a lack of awareness or the absence of a dedicated resource focusing on this area of tax. Our aim is to support clients at each stage of a property’s lifecycle to ensure that all eligible costs are claimed when expenditure is incurred and that claw backs are minimised on ultimate sale.
We collaborate with your in-house teams and tailor support to meet your specific requirements.
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Clavering House I Clavering Place
Newcastle NE1 3NG
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