What Are Property Capital Allowances?
When you have purchased or invested in property wholly for business purposes, some of these costs can be offset against profits and income as part of your end of year tax return.
The property must be used as a commercial venture for business purposes.
Property allowances look at how you have bought, sold or invested in a commercial property.
Capital allowances are most commonly applied to movable assets such as desks and office equipment. Many business owners are not aware that fixed assets, such as kitchens or heating systems, can also be claimed as part of capital allowance relief.
When you’re buying commercial property, it’s important to know what the seller has already claimed or intends to claim for their capital allowances. Their actions (or inaction) can affect how much relief you can claim, so it’s essential the transaction is understood and the correct provisions written into the sale contract.
You need to find out if the seller has already claimed allowances; if not, determine whether they will do so (or able to) before selling the property. Without this, you as the buyer may not be entitled to claim allowances on a second-hand property.
Remember that your commercial property also includes moveable fixtures and fittings (chattels) and plant and machinery. These are likely to have been written down as ‘writing down allowances’ for depreciation, which must be taken into account both in the sale price and ongoing allowance claims.
Buying commercial property with the intention of claiming allowances can be complicated and difficult thanks to confusing legislation. If you want to make sure you’re maximising tax relief potential on a new or second-hand commercial property, speak to us before arranging the sale.
Investing in Existing Property
If you have invested in your existing business premises in this financial year, some of those costs may be offset against your profits through capital allowances.
The type of investment includes developments to plant and machinery or fixed assets such as air conditioning or heating duct systems or new kitchen equipment.
You can not use allowances for things that are not solely for business purposes. If you work from home, for example, you can’t claim for your new kitchen refurbishment.
Furnished Holiday Lets
There are extra rules regarding capital allowances if your business involves running furnished holiday lets (FHLs).
To determine whether your property is an FHL it must meet the following criteria:
- It must not be your place of residence;
- The property must be within the UK or the EEA;
- It must be fully furnished for normal occupation;
- You must intend to make a profit from letting the property out; and
- The property must be available to let 210 days every year (this does not include any time you or friends and family stay in the property).
You must have let your property on a commercial basis for at least 105 days in the tax year to apply for capital allowances. If you don’t meet this threshold, you can either:
- Average the days between another FHL you own in the UK or EEA, or
- Elect for a period of grace, if your property goes above the required 105 days some years but not others.
Does Air BnB Count?
The boom in rent-a-room or short term let property websites such as Air BnB have raised tax questions for many.
Your Air BnB does not count as a furnished holiday let if you live in it. If that’s the case, you can operate under the Rent-A-Room scheme which allows you to accrue £7,500 in gross rent every year without tax deductions. If you own the property with someone else such as your spouse, this is reduced to £3,750 each.
If you run a short term let as a separate property and it meets all of the above criteria as an FHL, then you may use capital allowances to minimise your tax requirements on the property.
The key here is short term let: any long-term tenancy above 31 days falls under typical regulations for landlords. The exception is if you advertise and operate your property as a short term let, but something has happened which prevents the tenant from leaving, such as falling too ill to leave.
How do we Calculate Your Property Capital Allowances
- Do Our Research
If you haven’t claimed any Property Capital Allowances you could claim allowances from previous years of your business. We would review all available paperwork relating to your expenditure on your commercial properties since you started trading.
This information should ideally include all fixed and movable asset registers, from fixtures and fittings to plant and machinery, as well as costs of purchasing a property. We would also review your tax position to ensure if a claim can be made, that it’s understood how your tax position will benefit specifically.
- How do We Work Out Your Qualifying Assets
Our qualified property surveyors and valuers understand property, know what embedded fixtures & fitting are required for a property to function.
Our qualified capital allowance experts have the required understanding of legislation and apply this correctly to your property expenditure.
The combination of property law, surveying, valuation, accounting, taxation and capital allowance disciplines are crucial in order to maximise a legitimate Property Capital Allowance claim.
- How do We Apply Your Claim to Your Tax Position
When we have worked out the value of your capital allowance claim, it’s time to add these to your tax return.
Our qualified tax experts ensure a claim is applied to your tax position in the most tax-efficient way.
Remember, a retrospective Property Capital Allowance claim can be applied to ‘open tax returns’. This enables us to submit an amended tax return to HMRC on your behalf with the aim of recovering the paid tax.
Ask an Expert
If property capital allowances have put your head in a spin, it’s time to reach out to an expert.
Specialist Property Capital Allowance Experts can help you to find the best way to maximise your tax relief options with capital allowances, and they can even do all of the research legwork for you too.
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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.