MANY business owners ignore valuable claims for tax relief through Capital Allowances due to a perception of the complexity involved in identifying qualifying property related expenditure, Appropriate consideration of capital expenditure could result in significant cash-flow advantages for many businesses.
An advantageous way to maximise deductions against taxable profit is by utilising the Annual Investment Allowance (“AIA”) of £200,000. The AIA provides a 100% deduction for the cost of most plant and machinery in the year of purchase. Where the annual limit is breached, additional qualifying expenditure attracts an annual writing down allowance of 18% or 8%, depending on the type of asset.
The timing of expenditure should be carefully planned to ensure the maximum tax relief through AIA is available.
Maximising tax relief for property expenditure differs depending on the nature of the property transaction:
Second Hand Buildings: Where a new owner of second hand property seeks tax relief on an element of the cost of a building, it is mandatory for both seller and the purchaser to elect to agree the value of the fixtures in the building on which the seller has previously claimed capital allowances. If no election is made, there are restrictions on future owners being able to claim capital allowances on the particular fixtures. It is therefore important that the planning, negotiation and agreement to achieve tax relief happens as part of the legal property purchasing or selling process.
Newly Constructed Building: When purchasing such a building, it is vital to ensure the legal documentation contains sufficient detail of the construction expenditure to maximise the capital allowances available. This should involve discussions with project managers to agree the level of information required.
Building Refurbishments: Additional consideration should be given to ensuring that any repairs undertaken as part of the refurbishment are correctly identified and accounted for as these could qualify for a full deduction against taxable profit in the year end of expenditure.
Existing Buildings: Immediate cashflow advantages can be available where a review of the costs of buildings purchased prior to 2012, and still owned, are undertaken to establish any historical unclaimed capital allowances.
If you are involved in any property transactions do not overlook the importance of the legal documentation to protect the tax reliefs you could claim through Capital Allowances and if you have owned properties for a number of years, it is certainly worthwhile reviewing to see if you are sitting on any unclaimed allowances. Always remember where there is a building, there is normally tax relief in the form of Capital Allowances.If you have any questions on Capital Allowances please contact Lesley Connon, Tax Senior Manager (firstname.lastname@example.org) or your usual AAB contact.