If you did have you claimed all the tax allowances to which you are entitled? The answer may well be no if you have not received this piece of tax advice from your accountant. Why, because capital allowances relating to property assets is such a complex area of tax legislation and you would need to be aware of a new category of expenditure that qualifies for tax relief.
HM Revenue & Customs (HMRC) introduced in the Finance Act 2008 (FA 2008) a new category of plant and machinery expenditure which qualify for capital allowances. The new category is called integral features. For these purposes an integral feature is:-
- an electrical system (including a lighting system),
- a cold water system,
- a space or water heating system, a powered system or ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
- a lift, an escalator or a moving walkway,
- external solar shading.
Of these items only (c) and (d) would have qualified for capital allowances prior to April 2008 and anyone that acquired property prior to April 2008 would therefore not have been able to claim allowances on the three remaining items of expenditure.
Due to the nature of these integral features even properties that would not have previously warranted consideration from a capital allowance prospective should now be considered. As well as a manufacturer’s research and development facility, even a High Street retail unit will usually contain an electrical system and with a cold water system.
These allowances are likely to be substantial. It has been estimated that on a typical office building these items could be worth at least 2% - 6% of the purchase price. For example, on a £5m acquisition this could equate to additional allowances of anywhere between £100,000 and £300,000 which at a corporation tax rate of 28% would represent additional tax relief of anywhere between £28,000 and £84,000.
The manner in which the additional tax relief flows through to the buyer will depend on various factors but assuming that the Annual Investment Allowance currently at 100% for £100,000 of costs (100% for £50,000 of costs for expenditure incurred before April 2010 and 100% for £25,000 of costs for expenditure after April 2012) which was also introduced by FA 2008 is available the allowance for the buyer for set off against the first year of claim will be the whole of the £100,000 (at 2%) or £120,000 (at 6%).
In addition, where the integral features contain “green” expenditure they may qualify for accelerated capital allowances at 100% under the Enhanced Capital Allowances System. The assets included within the system and those incurred on energy – saving and environmentally – friendly expenditure and include certain air conditioning, combined heat and power, solar technology and water saving devices etc.
Consequently, on the purchase of business premises after March 2008 it is important to allocate the correct sum of expenditure to the appropriate plant and machinery pool to ensure that all available reliefs are utilized to their fullest extent. The sum to be allocated is likely to be based on a just apportionment of the purchase price . We have many years experience in formulating these claims for businesses in Lancashire and the North West, and will gladly assist you in obtaining the maximum tax reliefs on this fundamental asset for your business.