Capital allowances are a form of tax relief on items bought for use within a business. They allow property owners to write off the cost of assets against taxable profit. It is estimated that 96% of UK businesses are under-claiming their entitlement, or failing to claim at all, thereby missing out on tens of billions of pounds of tax relief.
Computers, carpet and lighting may all qualify for capital allowances. Any accountant worth their salt should pick up on these, but property owners can also claim for certain fixtures and integral building features. These could include electrical wiring, cold water systems, heating, air conditioning systems and lifts.
Claiming capital allowances on fixtures and building features requires a level of specialist expertise beyond that which a general practitioner could be expected to possess, so less obvious items are often left unclaimed. Consequently, many property owners are only claiming the tip of the iceberg while most of the value remains hidden from them. This means they pay more tax than they need to i.e. lose money.
Take Lincoln Holland JV Ltd, a Brighton-based property development and investment business, as an example. Alongside several other investors, Lincoln Holland JV Ltd bought a large residential building in Brighton to let out as 37 separate apartments. Capital allowances do not extend to ‘dwelling space’ and therefore previous owners had not claimed tax relief. However, STax conducted a capital allowances survey, reviewing the systems in the communal areas, such as the halls, lift and the plant room, not classified as dwelling areas. The firm calculated that Lincoln Holland JV Ltd was entitled to claim capital allowances to the tune of over £320,00 as a result of the historical expenditure. These included a large lift and a communal central heating system.
“STax simplified a highly complex area of tax and generated substantial savings on our behalf. I was so impressed with the outcome of survey, that I have since introduced the firm to several business partners and investors.”
STax has completed capital allowance claims on two of Lincoln Holland JV Ltd’s properties and consulted on a further five buildings with individuals and businesses linked to the developer. The firm has also provided some ad-hoc advisory work for the group.
Capital allowances can substantially reduce a property owner’s tax bill or in some cases provide a cash rebate for previous years. Individual claims can sometimes amount to as much as 35% of the value of a freehold i.e. £350K of tax relief for a building bought for £1m.
The Finance Bill 2012 has changed the way capital allowances work at the point of sale however the central reform is yet to be enacted. The principal rule, which comes into effect in April 2014, is the introduction of mandatory pooling of capital allowances. From this date all commercial properties must be fully assessed and capital allowances pooled, recorded and transferred to the new owner. If this does not happen by the book then the opportunity to claim simply disappears. Businesses wishing to unlock tax relief need to act now or risk losing this major tax benefit.
STax is a firm of tax advisers specialising in capital allowances. For further information visit https://www.s-tax.co.uk