Property Capital Allowances Landlords can use property capital allowances to claim tax relief on capital expenditure. The tax relief can be 30% of the property value, so it is worth making full use of this type of tax relief. What are the basics of property capital allowances? Capital allowances are another term for ‘tax depreciation’ or the amount of tax relief that can be deducted from income annually from the purchase price of a property. There are two main capital allowances when buying a property: Structures and Buildings Allowance. Capital allowances fixtures legislation allows for apportioning part of the purchase price of a property to the plant and machinery within that property. Depending on the type of property and any claim made by previous owners, the value of the capital allowances can be up to 30% of the property price. You may be able to claim Structures and Buildings allowance tax relief annually on particular money spent. This allowance may last the whole allowance period. You must have paid some or all the costs towards the building’s purchase, construction or renovation to make a claim for property capital allowances tax relief. Who can claim property capital allowances? If you are the owner of commercial property and subject to UK tax, you are entitled to make a capital allowances claim on qualifying fixtures in your property for tax relief. Capital allowances apply whether you own the property as an investment or if it is used in your trading business. A UK business which spends money on capital assets for use in its business cannot claim a tax deduction for that expenditure. Instead, a tax relief called a capital allowance may be available for certain types of expenditure. The aim of capital allowances is to give tax relief for the reduction in the value of certain capital assets used by a business, by letting the business write off the cost of the assets over a number of years against their taxable income. Some buildings may qualify for new structures and building allowances. Even if allowances are not available in respect of the property itself, the building may contain items of plant and machinery such as lifts, heating systems, air conditioning and sanitary fittings, which may qualify for capital allowances tax relief. The availability of capital allowances can be an important consideration in selling or purchasing a commercial property. What are Structures and Buildings Allowances? Structures and Buildings Allowances (SBAs) give tax relief on eligible construction costs incurred on or after 29 October 2018. The tax relief was given at 2% on a straight-line basis until April 2020, when it increased to 3%. Structures and buildings qualifying for SBAs include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. Capital expenditure on renovations or conversions of existing commercial structures or buildings also qualifies for this tax relief. These capital allowances do not apply to dwellings or to expenditures on the land itself. Businesses can claim the SBA on the following expenditure: The costs of physically constructing the structure or building. Demolition or land alteration costs necessary for the construction. It is worth making a claim for these to gain tax relief on any commercial property. How can I claim capital allowances on property? The allowances are available to anyone incurring capital expenditure, either buying or building commercial property or furnished holiday lets. You can claim these capital allowances on certain purchases or property investments and can deduct a proportion of these costs from your taxable profits to reduce your tax bill. Capital allowances represent a valuable form of tax relief. Less than 10% of UK commercial property owners have made a capital allowances claim, and more than 90% of property owners have significant amounts of money sitting with HMRC awaiting claim. It is worth reviewing how to make a capital allowances claim with HMRC. The rules on making a retrospective capital allowances claim have changed recently, so getting the right advice is important before you make any commercial property sale or purchase. You can make a capital allowances claim regardless of how long you have owned or built commercial property. It applies across all commercial property sectors and is valuable tax relief. You can own the property privately or as a limited company. You cannot claim capital allowances within a dwelling for residential investment properties unless they are a serviced apartment or furnished holiday let. What can I claim capital allowances against? Capital allowances can no longer be claimed on the buildings themselves, but you can make a claim for tax relief on the internal fixtures or items of plant and machinery that perform an active function within the property. These internal fixtures and items of plant and machinery can include: Plumbing, heating, powered ventilation, external solar shading Lifts but not the lift shaft Roller shutter door machinery but not the door Decoration in pubs/restaurants that gives ambience It is worth making a claim for tax relief against expenditure on any such items in the property. How are capital allowances on property calculated? The amount of property capital allowances tax relief available depends on the type of expenditure incurred. The tax relief can vary from 100% relief for energy-efficient plant and machinery to 8% for expenditure on a new lighting system. Capital allowances are based on the amount of spend that qualifies for capital allowances multiplied by the effective tax rate that is being paid by the business. Can I claim for depreciation and capital allowances? Depreciation is an accounting adjustment to recognise the decrease in value of an asset (moveable or fixed assets) over time due to wear and tear. It is non-deductible for tax purposes. Capital allowances are a tax-deductible version of depreciation. Capital allowances to property and repair costs to the property are both tax-deductible, but they are handled differently. Improvements have a much greater impact on the value of your property than wear and tear repairs, so they’re depreciated when you file your tax return.
Property Capital Allowances Landlords can use property capital allowances to claim tax relief on capital expenditure. The tax relief can be 30% of the property value, so it is worth making full use of this type of tax relief. What are the basics of property capital allowances? Capital allowances are another term for ‘tax depreciation’ or the amount of tax relief that can be deducted from income annually from the purchase price of a property. There are two main capital allowances when buying a property: Structures and Buildings Allowance. Capital allowances fixtures legislation allows for apportioning part of the purchase price of a property to the plant and machinery within that property. Depending on the type of property and any claim made by previous owners, the value of the capital allowances can be up to 30% of the property price. You may be able to claim Structures and Buildings allowance tax relief annually on particular money spent. This allowance may last the whole allowance period. You must have paid some or all the costs towards the building’s purchase, construction or renovation to make a claim for property capital allowances tax relief. Who can claim property capital allowances? If you are the owner of commercial property and subject to UK tax, you are entitled to make a capital allowances claim on qualifying fixtures in your property for tax relief. Capital allowances apply whether you own the property as an investment or if it is used in your trading business. A UK business which spends money on capital assets for use in its business cannot claim a tax deduction for that expenditure. Instead, a tax relief called a capital allowance may be available for certain types of expenditure. The aim of capital allowances is to give tax relief for the reduction in the value of certain capital assets used by a business, by letting the business write off the cost of the assets over a number of years against their taxable income. Some buildings may qualify for new structures and building allowances. Even if allowances are not available in respect of the property itself, the building may contain items of plant and machinery such as lifts, heating systems, air conditioning and sanitary fittings, which may qualify for capital allowances tax relief. The availability of capital allowances can be an important consideration in selling or purchasing a commercial property. What are Structures and Buildings Allowances? Structures and Buildings Allowances (SBAs) give tax relief on eligible construction costs incurred on or after 29 October 2018. The tax relief was given at 2% on a straight-line basis until April 2020, when it increased to 3%. Structures and buildings qualifying for SBAs include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. Capital expenditure on renovations or conversions of existing commercial structures or buildings also qualifies for this tax relief. These capital allowances do not apply to dwellings or to expenditures on the land itself. Businesses can claim the SBA on the following expenditure: The costs of physically constructing the structure or building. Demolition or land alteration costs necessary for the construction. It is worth making a claim for these to gain tax relief on any commercial property. How can I claim capital allowances on property? The allowances are available to anyone incurring capital expenditure, either buying or building commercial property or furnished holiday lets. You can claim these capital allowances on certain purchases or property investments and can deduct a proportion of these costs from your taxable profits to reduce your tax bill. Capital allowances represent a valuable form of tax relief. Less than 10% of UK commercial property owners have made a capital allowances claim, and more than 90% of property owners have significant amounts of money sitting with HMRC awaiting claim. It is worth reviewing how to make a capital allowances claim with HMRC. The rules on making a retrospective capital allowances claim have changed recently, so getting the right advice is important before you make any commercial property sale or purchase. You can make a capital allowances claim regardless of how long you have owned or built commercial property. It applies across all commercial property sectors and is valuable tax relief. You can own the property privately or as a limited company. You cannot claim capital allowances within a dwelling for residential investment properties unless they are a serviced apartment or furnished holiday let. What can I claim capital allowances against? Capital allowances can no longer be claimed on the buildings themselves, but you can make a claim for tax relief on the internal fixtures or items of plant and machinery that perform an active function within the property. These internal fixtures and items of plant and machinery can include: Plumbing, heating, powered ventilation, external solar shading Lifts but not the lift shaft Roller shutter door machinery but not the door Decoration in pubs/restaurants that gives ambience It is worth making a claim for tax relief against expenditure on any such items in the property. How are capital allowances on property calculated? The amount of property capital allowances tax relief available depends on the type of expenditure incurred. The tax relief can vary from 100% relief for energy-efficient plant and machinery to 8% for expenditure on a new lighting system. Capital allowances are based on the amount of spend that qualifies for capital allowances multiplied by the effective tax rate that is being paid by the business. Can I claim for depreciation and capital allowances? Depreciation is an accounting adjustment to recognise the decrease in value of an asset (moveable or fixed assets) over time due to wear and tear. It is non-deductible for tax purposes. Capital allowances are a tax-deductible version of depreciation. Capital allowances to property and repair costs to the property are both tax-deductible, but they are handled differently. Improvements have a much greater impact on the value of your property than wear and tear repairs, so they’re depreciated when you file your tax return.
