Capital allowance claims were introduced to promote investment in commercial properties. The claims give a very lucrative tax saving to commercial property owners, which makes it beneficial to invest in commercial properties. Capital allowances on buildings benefit small and large businesses alike, but it can be especially beneficial for a start-up company to utilise these claims.
Every year changes are made to capital allowances. The annual rates and thresholds may be adjusted, and sometimes additions are introduced. A big change was made to capital allowances in 2014 which buyers and sellers of commercial properties may still be unaware of. If a building is sold after April 2014, allowances are transferable at the point of sale from the seller to the buyer. It’s important that capital allowances are identified at the point of transaction. A jointly signed election must detail the fixtures with their corresponding transfer values. If this isn’t done, the capital allowances will be lost forever for the buyer as well as any future buyers of the building.
Following is a summary of the most common types of allowances. The summaries only highlight certain points, and it’s advisable to get a capital allowance specialist on board to identify and explain these in more detail.
Under the annual investment allowance (AIA) 100% of qualifying expenditure can be claimed within the period the plant and machinery was bought, subject to an annual threshold. Cars can’t be claimed under AIA.
Any balance of capital expenditure on plant and machinery not already claimed under any other allowance can be included in the writing down allowance (WDA). The current WDA rate is 18% a year.
Certain items of equipment qualify for this special rate, currently at 8% per year. Some examples include thermal insulation, electrical systems, escalators and solar panels.
If the balance in either the main pool or special rate pool is £1,000 or less, the whole amount can be claimed as a small pools allowance.
For certain expenditure a 100% first year allowance (FYA) can be claimed. This includes investments in energy-saving technologies and new cars with low CO? emissions.
Other Capital Allowances
Other capital allowances include business expenditure that can’t be defined as plant and machinery. This includes:
• renovation of business premises in certain disadvantaged areas of the UK,
• extraction of minerals,
• research and development,
• know-how or intellectual property,
• patents, and
The identification and treatment of capital allowances can be quite complex. If you’re an accountant or lawyer who has clients who owns commercial property, or are in the process of selling or buying commercial property, you may want to know more about capital allowances or accelerated capital allowances. As capital allowance specialists, Catax Solutions partnered with ICAEW and The Law Society to provide training for professionals, which will also count towards CPD. Click here to find out more about capital allowances CPD.