How Do Capital Allowances Work When It Comes to Commercial Property?

How Do Capital Allowances Work When It Comes to Commercial Property?

How Do Capital Allowances Work When It Comes to Commercial Property?

Within the UK tax regime, capital allowances allow businesses to secure significant amounts of tax relief. For those investing in or owning commercial property, understanding how capital allowances function can lead to sizeable financial benefits. So, let’s delve deep into the nuances of capital allowances, particularly focusing on their impact on commercial properties.

 

What are Capital Allowances?

At their core, capital allowances offer businesses a way to obtain relief from tax by accounting for the wear and tear or depreciation of tangible assets. Instead of deducting the full cost of the asset from the profit at once, capital allowances enable businesses to spread the deduction over several years, reducing the taxable income incrementally.

 

Capital Allowances & Commercial Property

Commercial property is one of the primary sectors where capital allowances come into play. These allowances cover more than just the physical bricks and mortar. They encompass various inherent items of plant & machinery within a property. For example, cold water and electrical systems, heating, ventilation and air conditioning systems. Let’s look at the key areas:

1. Structures and Buildings Allowance (SBA): The SBA was introduced to offer tax relief on the capital costs of constructing or renovating non-residential buildings and structures. With a straight-line 3% relief over 33 and a third years, businesses can claim back a part of their property investments gradually.

2. Plant and Machinery: Perhaps the most well-known, this category covers movable fixtures and integral features within a property. Think of lifts, security systems, or even elaborate ventilation systems. Certain elements within commercial buildings qualify under this allowance, providing businesses a way to offset costs.

3. Renovation of Business Premises: If a business revamps an unused commercial property, bringing it back to life, it might be entitled to capital allowances on the renovation costs. This serves as an incentive to rejuvenate dormant or dilapidated properties.

The Particulars of Claiming

Claiming capital allowances for commercial property isn’t merely about owning a qualifying asset. There are a few things to bear in mind:

  • Timing is Crucial: It’s possible to claim capital allowances for previous years if they haven’t been claimed before. However, once a commercial property is sold, any unclaimed allowances might be lost forever.
  • Detailed Records: HMRC is keen on evidence. Maintain meticulous records of all capital expenditure, including invoices, contracts, and details of the work done.
  • Professional Insight: With the complexities surrounding what qualifies and what doesn’t, it’s often beneficial to have a capital allowances specialist or a chartered surveyor in the loop. That’s our area of expertise. We can offer insights into maximising claims and navigating the intricate rules.

 

In Conclusion

Capital allowances, when fully understood and effectively utilised, offer commercial property owners a potent tool to reduce tax liability. They act as an incentive to invest, renovate, and grow, fostering a vibrant business environment. As with all tax-related matters, staying informed and seeking expert advice is the way forward, ensuring that your business reaps all the benefits it’s entitled to.

 

Get in touch

If you want to find out more about capital allowances or make a claim, contact us at: info@cpatax.co.uk