Key Considerations for Building a Property
Looking at the key factors
Eligible costs and Qualifying assets
When constructing a property to maximise capital allowances, there are key factors to consider. Firstly, it is important to identify the eligible costs incurred during the construction process. This could include materials, labour, and professional fees. Proper categorisation and documentation of these expenses are important for supporting the capital allowance claim.
Additionally, it is crucial to pay attention to assets that qualify for capital allowances. Including integral features and embedded items, like heating and ventilation systems, electrical installations, sanitary ware, and fire safety equipment. These items should be identified and recorded to ensure their inclusion in the claim. Engaging with experts who specialise in capital allowances from the early stages of the construction project can provide valuable guidance on cost segregation and asset identification.
Key Considerations for Renovating a Property
Looking at the key factors
Property-embedded Fixtures and Fittings, as well as Structural changes
When refurbishing a property to maximise capital allowances, PEFFs should be considered. What Property Embedded Fixtures and Fittings (PEFFs) may qualify for tax relief. These integral and embedded assets, such as heating systems, electrical installations, and fire safety systems. Plus, any of these should ideally be documented accurately.
Additionally, tracking structural changes made during the refurbishment should be considered. Engaging with capital allowance experts early on, and maintaining thorough records and invoices are essential steps. By following these guidelines, businesses can increase their chances of a successful capital allowance claim and maximise their tax savings.
So, which gains the most tax relief? Let’s take a look at 2 case studies to see what results were achieved.
Case Study 1: Hotel Renovation Project
Refurbishment cost: £804,000
Claim value: £547,000
Our client underwent extensive hotel refurbishments over 12 months. The refurbishment was a non-structural full overhaul of the property, and contractors were hired to carry out the renovation work. To accurately assess the expenses incurred during the refurbishment, detailed Quantity Surveyor Reports were provided by the contractors, which included a comprehensive breakdown of the expenditures along with supporting photographs. However, when it came to determining the maximum level of capital allowances the accountant faced challenges due to the complex legislation involved.
After careful examination, an Identified Claim Value of £547,000 was established. This represents a claim percentage of 68%.
Case Study 2: Construction of Care Homes
Construction costs: £2,455,000
Total tax savings: £130,000
Our second case study involved a limited company that built two care homes as an investment to rent them out. The client turned to us due to our reputable process. The claim focused solely on the construction costs, excluding tenant-related expenses. As care homes often generate substantial capital allowance claims, our client achieved a remarkable result. With a construction cost of £2,455,000, we identified capital allowances amounting to £660,000. The claim was submitted in 2019, resulting in total tax savings of £130,000 and a tax refund of £23,000, representing a claim percentage of 27%. The client praised the painless and efficient nature of the capital allowance claiming process and the friendly and supportive service provided by our team.
Build vs Renovate
From the case studies discussed, it is evident that both building and renovating present opportunities for substantial capital allowance claims. Whether it is through a meticulous review of renovation invoices or identifying qualifying assets during construction. Businesses can unlock significant tax savings in both scenarios. Regardless of whether a business chooses to build or renovate, each scenario is different and therefore yields different results.
Typically, we find renovations yield higher claims given renovations do not always involve structural costs due to the structure of the building being already in place. Clearly, with building projects, a significant cost will be spent building the structure. Structural costs (also known as “Setting”) qualify for Structures & Buildings Allowances (SBA) however the benefits are minimal.
It’s worth noting that where a building is constructed to house R&D, the structural cost may qualify for Research & Development Allowances (RDA) which generates a great tax benefit when compared with SBA.
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22 November 2023
Autumn Budget 2023: Changes to Capital AllowancesThe Autumn Budget of 2023 has arrived, and with it comes significant changes and developments the government has put in place. Chancellor Jeremy Hunt delivered the statement on Wednesday, 22 November 2023. For businesses and individuals alike, these adjustments in tax policies can have far-reaching implications.
Our expert team are here to help answer any of your capital allowances questions or enquires you have about your commercial property.