Capital Allowances is a form of tax relief which can provide a valuable tax saving if claimed on certain property expenditure. Capital Allowances are available to owner occupiers, companies, small enterprises, partnerships, individuals and overseas investors.
Who can claim?
Anyone who owns an interest in a property, whether it be a freehold, leasehold or as a tenant and incurs capital expenditure either by acquiring that property, developing it from new, carrying out a refurbishment or fitting it out, will all give rise to an opportunity to claim Capital Allowances. All building types can attract Capital Allowances from offices, industrial, retail to leisure. The only specific exclusion is a dwelling home such as a house or flat, but even for the latter the common areas including plant rooms can be claimed on, as can residential care homes and student accommodation.
To benefit from making a claim for Capital Allowances, the property must be held as your business premises or an investment property which you derive an income from. Property developed by a developer and held as trading stock does not qualify. As Capital Allowances is a form of tax relief you must be tax paying, so non-tax payers such as pension funds or charities cannot claim.
Since 2011 it is no longer possible to claim capital allowances on the actual building or structural aspects of the property, e.g. floors, roof, walls.
The most common failure in identifying eligible expenditure arises when businesses do not identify items of plant and machinery or integral features within buildings that they own. These include assets that make up the intrinsic fabrication of a commercial building such as heating and cooling systems, emergency lighting, security systems and sanitary ware etc. Typically these costs are not segregated from the building cost and are coded to freehold additions with no allowances claimed.
Writing down allowances
The ‘normal’ allowance is a writing down allowance of 18% or a special pool writing down allowance of 6%. But there is currently a much more beneficial allowance available, the annual investment allowance (see below).
Annual investment allowance
The annual investment allowance (AIA) provides 100% tax relief on assets qualifying as plant and machinery, subject to an annual maximum and excluding cars. Also, it is not possible to claim the AIA on assets which you owned and used for another reason (such as for personal use) before using them within the business, in which case you may use the small pool allowance or claim a writing down allowance in the main general pool.
The maximum amounts have varied since the AIA was introduced. The maximum amounts for the current and previous tax years are as follows:
|From 1 January 2016 to 31 December 2018||£200,000|
|From 1 January 2019 to 31 December 2019||£1,000,000|