Budget 2021 Capital Allowances Announcement

Following the announcement of the 2021 budget designed to reinvigorate the economy after the coronavirus crisis, several positive changes have been put in place working to the benefit of commercial landlords. The government believes this plan will reinvigorate the commercial property sector which has seen massive losses as a result of the pandemic. Any properties purchased between the 1st of April 2021 and the 31st of March 2023 are eligible for a capital allowances super-deduction.

Qualifying plant and machinery will be eligible to claim at 130%, and certain special rate assets will be able to claim at 50% on first-year allowances. Prior to this announcement, plant and machinery were claimed at an 18% depreciation rate, and special rate assets were claimed at 6%.

A £1,000,000 fully commercial property owned in a limited company could previously expect to claim £200,000 in qualifying expenditure resulting in an approximate £40,000-£80,000 tax saving. With the super deduction commercial landlords are now able to claim on a higher rate of depreciation pushing the tax-saving even higher.

As this only applies to properties purchased after the 1st of April 2021, the annual investment allowance applies to allow a commercial landlord to claim the full tax saving in year one. The £1,000,000 threshold for the annual investment allowance, initially set to go down to £200,000 will now continue at the same rate.

Please see examples below:

Example one

  • A company incurring £1m of qualifying expenditure decides to claim the super-deduction.
  • Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits.
  • Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill.

Example two

Previous system With super-deduction
A company spends £10m on qualifying assets.

 

Deducts £1m using the AIA in year 1, leaving £9m.

 

Deducts £1.62m using WDAs at 18%.

 

Deductions total £2.62m – and a tax saving of 19% x £2.62m = £497,800.

The same company spends £10m on qualifying assets.

 

Deducts £13m using the super deduction in year 1.

 

Receives a tax saving of 19% x £13m = £2.47m.

This is a landmark opportunity for anyone looking to invest in commercial property in 2021, to see if you are eligible to claim, get in touch with us today:

jess@cpatax.co.uk

0207 725 9946