Understanding Capital Allowances
Capital allowances (CA) are a type of tax relief set by the government. CA’s allow a business to deduct the cost of certain capital assets from its taxable profits.
This can include furniture, fixtures, systems, machinery, and equipment. Capital allowances may enable you to claim a significant portion of purchase and/or renovation costs. Claiming qualifying costs will enable you to retain more of the income the investment generates as CA’s will protect all, or part, of your taxable profits from tax.
Even if you completed renovations many years ago, it’s not too late to revisit these costs for capital allowances purposes.
Maximising Capital Allowances During Refurbishment
It’s important to note that the help of an expert in this situation can make significant difference. This ensures that you can complete the following stages to calculate a full & robust claim.
Conduct a Detailed Survey
Before diving into the refurbishment, conduct a thorough survey of your property. This survey will help identify all the assets eligible for capital allowances that you’re about to rip out. Engage a qualified surveyor who is experienced in FHL claims to ensure no qualifying items are overlooked.
IMPORTANT: Evidencing entitlement to claim items is vital e.g. items not being claimed by prior owners and you using the items in a qualifying way before being replaced.
During refurbishment, you may replace, repair or upgrade items or systems. It’s crucial to segregate or categorise costs to understand the nature of the works completed. This ensures the costs are treated properly with the right tax break applied.
IMPORTANT: Understanding the difference between a repair, renewal or important is vital.
Know the Different Allowances
Where capitalised costs qualify, capital allowances are classified into different pools, with different rates of relief. The are numerous options however the two main types are the main pool and the special rate pool. Understanding these classifications can help you maximise your claims effectively.
IMPORTANT: Understanding First Year Allowances is essential to ensure tax relief is crystalised in the most tax-efficient manner.
Claim Integral Features
Certain features of your FHL, such as heating systems, electrical wiring, and air conditioning, could be considered qualifying for Integral Features and qualify for the special rate pool.
IMPORTANT: Integral Features is an example of a category of capital allowances that is defined clearer than others. What qualifies for capital allowance isn’t defined in law therefore understanding how “functionality” interacts with legislation is important.
Consider "Prior Asset" Claims
If you acquired a property in the past, and/or made improvements, and didn’t claim capital allowances you may be eligible to make a retrospective claim in your current tax return.
IMPORTANT: Understanding the timeline of expenditure on a property is crucial when completing retrospective claims mainly for two reasons 1.) what legislation is applicable and 2.) what items/costs still remain and can be considered.
How Our Expert Team Can Help
Our team of experts have a deep understanding and experience of how capital allowance legislation is applied to FHLs.
Navigating the world of tax and capital allowance claims can be daunting. Our expert team specialises in helping FHL owners like you to optimise their capital allowance claims. With years of experience in the field and a deep understanding of the latest tax regulations. We ensure no eligible assets are missed, and your claims are maximised. Our hassle-free process allows you to focus on your FHL while we handle the complex paperwork and calculations. Ensuring you enjoy the full benefits of capital allowances.
Frequently Asked Questions
Can I claim capital allowances on an FHL that's already operational?
Yes, you can!* If you missed claiming capital allowances in previous years, you can make a retrospective claim and amend your tax returns. It’s worth exploring this option to maximise your tax relief.
*IMPORTANT: Claim is subject to a number of conditions. An example is evidencing entitlement to claiming items is vital e.g. items not being claimed by prior owners.
Are there any limitations on the value of assets I can claim capital allowances on?
There are no limitations on the value of assets you can claim capital allowances on however there limitations on how qualifying assets are claimed. Currently, the Annual Investment Allowance (AIA) allows you to claim allowances up to £1m on expenditure in a single tax year If expenditure exceeds this amount allowances will be claimed at 18% per annum for general pool items and 6% per annum for special rate pool items.
I inherited an FHL property, can I still claim capital allowances?
Yes, inherited properties can be considered and can eligible for capital allowances. You may be able to make a claim however carefully consideration should be applied when calculating the claim e.g. Connected Party.
How long does the capital allowance claim process take?
The duration of the claim process can vary depending on the complexity of your FHL and the availability of necessary documentation. With our expert team, we strive to complete the process as efficiently as possible, ensuring you receive your tax relief promptly.
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Our expert team are here to help answer any of your capital allowances questions or enquires you have about your commercial property.