It’s very rare that accountants spot opportunity to claim tax relief in really specialised areas. Chippendale and Clark working with a local specialist identify opportunities for clients to claim tax relief on commercial buildings.
To recap, capital allowances are a form of tax relief given on items deemed to be plant and machinery. This can often include large stand-alone items such as vehicles or equipment used in a trade but can also include fixtures to commercial property such as electrical systems and toilets.
How this related to commercial property can often be quite interesting for the property owner. If you were told that up to 30% of what you paid to build or purchase a property for could qualify as tax relief, would you be intrigued?
So to answer the initial question, our answer is ‘wherever you are in your property journey, capital allowances can be a very useful tool’. The most opportune time to consider allowances however, is at purchase and due to a rule change that came into force in 2014, it is now vitally important to get advise prior to completion. We often assist clients and their solicitors maximise the capital allowances that are available on purchasing a property. Additionally, by making a claim for allowances at the time of purchase or construction it is often possible to use all of the tax relief available immediately.
Conversely, even if you are considering selling a property and have yet to claim the capital allowances from when you purchased the property, or any subsequent redevelopment work, it is never too late to claim. As long as you still own the property we can help you go back and assess the allowances available to you even if you purchased the property many years ago.
Whether you are a property landlord that owns many properties, or a owner managed business operating from a single unit, capital allowances will be relevant to you and could reduce your tax liabilities greatly. It also doesn’t matter whether you own the freehold or a long leasehold, which is often the remainder of a 99 or 999 year lease, you are likely to be eligible to make a claim.
We recently purchased our own building and with the help of a specialist surveying firm we uncovered £36,000 of allowances, which will be a useful deduction come the company year end.
Case Study: Tax Relief on Commercial Buildings
Chippendale and Clark identified and used our specialist to provide guidance for a client who was entering into the final stages of contract negotiations with regards to a commercial property purchase.
As mentioned in our introduction “negotiation stage” is a perfect time to review Capital allowances, those who do this stand a much better chance of a positive outcome purely because both sides of the transaction are at the table and information can be passed back and forth easily rather than 6/12 months after completion.
It also means that Annual Investment Allowance (AIA) is available so any relief available can often be claimed in one go given the claim happens inside 2 years of completion (up to £1 million until January 2021).
After carefully considering the information contained in the CPSE ‘s under section 32 of the contract, we advised our client and their lawyer to request that certain clauses were added to the contract under a “section 198 election” so that we could investigate a potential “full claim”.
Our suspicion was that (as is often the case) the answers to questions 32.1 through to 32.5 had not been fully answered, and given the legislative changes that came into effect during the vendors tenure meant that if further clarity wasn’t obtained then a significant opportunity would be lost for our client to potentially claim.
As a result of the above, we were able to confidently propose to our client that based on the property type, and the level of plant / machinery embedded that we believed there to be around 15-25% of the purchase price in allowances that could be claimed in year one as AIA was available.
Following our client’s agreement to our proposal we surveyed the property thoroughly, taking measurements and pictures to aid our report.
The report was submitted to our client and their accountant a week later, this report would be added to the set of accounts for the year that were already scheduled to be sent to HMRC that month.
As we had stated in our proposal, our client was able to claim 20% of the purchase price (£210,000), resulting in £8,400 of tax relief available in year one.
This case reflects a big portion of the type of work we can be involved with, and it shows that asking the right questions in relation to contracts can lead to meaningful allowances being identified.
Two main takeaways from this case study are as follows:
- CPSE contracts and in particular section 32 form a key piece of documentation following legislation changes which give a two-year window for amendments to take place, after that time no changes can be made.
- Claims on property that happen inside a two-year window will result in AIA usually being available so relief can be claimed in year one.
Should you be interested in exploring potential Capital Allowances in your commercial property, please do not hesitate to contact us.
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