I bought my property 10 years ago, can I still make a claim?

Of course! Embedded Capital Allowances can be identified from the date of purchase to the present day, and the property will be evaluated based upon the original purchase price. However, from April 2012 new rules were introduced that effectively imposes a tax year time limit where allowances have previously been claimed. From April 2012 these rules have been tightened and if you fall into this category then you need urgent advice. For second hand property purchases, the default method to calculate the quantum of allowances is a just and reasonable apportionment of the purchase price.

Won’t my accountant have already dealt with any capital allowances claims?

It is very unlikely that your accountant will have done an Embedded Capital Allowances claim, and whilst there’s no doubt your accountant is doing a great job, they are unlikely to have a knowledge of the HMRC guidelines and manuals or a specialist team in place required to deal with Embedded Capital Allowances claims. We work closely with accountants to prepare the report and ensure that the figures provide the best possible benefits for you.

Who qualifies for Embedded Capital Allowances?

If you pay tax in the UK, are a commercial property owner and haven’t claimed Embedded Capital Allowances on your property before, then you could have a claim. This could include those who own dentist surgeries, veterinary surgeries, restaurant and hotels, care homes, people who let out holiday homes and more.

What can I claim allowances on?

Whilst most ‘everyday’ purchases such as computers and desks would have usually been claimed for, commercial property owners can claim capital allowances on items inherent within the property that are considered part of the building and that can incur costs, which can include air conditioning, kitchen and toilet fittings, security systems, specialist electrical equipment, heating systems; these items could hold substantial amounts of tax relief.

Are there any hidden costs?

Absolutely not. We look at claims for you on a results only basis, which means that if we do not find allowances that have been approved by HMRC, then we charge you nothing and any initial costs are covered by us. Our fee is completely linked to a successful outcome, so there is nothing to lose by investigating a potential claim.

How will HMRC be involved?

HM Revenue & Customs created capital allowances legislation in order to encourage more investment into commercial properties from individuals and business. All claims have to be submitted and approved by HMRC before any tax relief/benefits will be given. Our specialist team will liaise with them to find and identify allowances for you.

Will making a claim affect my capital gains position?

No, claiming capital allowances will not reduce the capital gains tax base cost of your qualifying property. Claiming Embedded Capital Allowances is a right, not a privilege.

Can I still claim allowances if I sell the property? Or would I lose any allowances?

You would not lose any allowances if you sold the property. You can retain and continue to claim allowances against any future taxable income of the same trade. However, you will need to insert a tax election within the sale and purchase contract in order for allowances to go forward. This election will need to be agreed and signed by both the vendor and buyer. If there is no election, then any previously claimed allowances can be taken away.

Can landlords claim Capital Allowances for a residential property, such as student houses?

The majority of residential dwellings are unable to qualify for Embedded Capital Allowances. The legislation prevents landlords from claiming Capital Allowances in a dwelling house, and the definition of a dwelling house can also include cluster flats and serviced apartments. Typically, no allowances will be available anywhere within these properties.

Shouldn’t my solicitor have advised me on this area of tax?

The majority of solicitors are not fully equipped to deal with this area of tax law, and many have found themselves in a situation where they are being asked to advise on this area that they do not feel fully comfortable with, which can leave the client ill-advised or given advice that can prejudice their rights on this matter going forward. This is why we work with solicitors to provide our service and expert advice to their clients.

Why is so little known about Embedded Capital Allowances?

Whilst these allowances have been available for a number of years, this is a very specialist area requiring a team of tax specialists and surveyors to identify the allowances and formulate a legitimate claim.

Will claiming Embedded Capital Allowances reduce the value of my property?

No- these allowances are not taken into account when a property is valued. However, if the value of allowances available is established it may help you negotiate a future sale.

What kind of results can be found?

The typical claim would be around 25% of the original purchase value of the property, which represents £125k of allowances in a £500k property, translating as £50k in tax refunds, which could have a big impact on an individual or business.

Can landlords claim capital allowances on expenditure incurred by their tenants?

Yes, landlords are eligible to claim allowances on capital contributions for construction works carried out by tenants. Appropriate wording will need to be included in the agreement to lease contract that stipulates how and to whom the contribution will be allocated for capital allowances purposes.

My property has been transferred from a connected party, so what price would be applicable for Capital Allowances?

Where an asset has been disposed of or acquired from a connected party, the allowances available are restricted to the lower of the connected party’s original purchase price or the market value of the property.

Would previous tax returns have to be opened to claim Capital Allowances on historical expenditure?

Not at all, as long as the plant and machinery is still owned by the claiming party a claim can be made in a current tax return.

If a large refurbishment of a hotel has been completed, can all the expenditure be claimed as repairs?

If all the expenditure is like for like replacement, then a claim for repairs can be made. However, normally some expenditure is required for enhancements and a capital allowances analysis would be required.

I let out my holiday home- do I need to let it out for a certain number of days a year to qualify for a claim?

Yes, your holiday home needs to be available to be let out for at least 210 days per year and is actually let for at least 105 days per year.

How much can care homes benefit from Embedded Capital Allowances?

Care homes can benefit a lot from capital allowances due to the host of things in the home that are considered embedded items. This would include heating systems, boilers, radiators, air conditioning, cold water systems, kitchen items, security systems, lightings systems and many more. The same can be said of hotels. By the very nature of care homes and hotels, these items and other qualifying items are in rich abundance in the property.

Can property developers claim Capital Allowances on commercial properties?

It is only possible to claim Capital Allowances on capital expenditure. This means that property that has been developed and is being held as trading stock will not qualify for allowances. However, capital allowances could be claimed if these properties are subsequently moved to fixed asset investments on the balance sheet.

How long will the process take from identifying the claim to receiving a tax refund?

A typical review would take up to 10 weeks, which allows for time to identify the property details and start our enquiries, provide a specialist review, arrange for a surveyor to survey the property, allow our tax specialist to assess and quantify the level of allowances the property will qualify for, submit the enquiry to HMRC and then wait for approval and a refund.

What is the average Research and Development claim?

Statistics vary on the average claim, but £50,000 for an SME is a fairly conservative estimate.

Typically, where would the majority of Research and Development claims come from?

On average, the majority of claims come from the manufacturing industry or business services, but any industry can apply so long as the activity undertaken qualifies.

What kind of information will be gathered to complete a claim?

Various information needs to be gathered, which includes a legal ownership documentation, details of works and refurbishments, company accounts and details of how the asset is treated, prior owners of the property and more. This may sound like a lot of information to give, but it is our job to source all the necessary material which means there is little hassle to you and your company.

What if the claim results in a HMRC enquiry?

HMRC have dealt with many claims, therefore they are well versed in them, just as we are fully qualified to deal with these claims which is reflected in our 100% success rate in having our claims approved by HMRC. Should an enquiry arise, we will support the claim free of charge.

What is plant and machinery?

There is no accepted definition of what constitutes as plant or machinery by HMRC, however it would include items such as fire alarms, boilers, security lighting, fire extinguishers, kitchen equipment, toilets, carpets, smoke detectors and more.

Can any business claim allowances?

Before any business can claim under the UK capital allowances regime, it must be carrying out a ‘qualifying activity’ and be paying tax in the UK. The qualifying activities would be trades and professions, ordinary UK property business, furnished holiday letting in the UK, ordinary overseas property businesses and furnished holiday letting elsewhere in the European Economic Area.

How would you know the value of plant and machinery?

We have a team of specialists to work out the value of certain items that would be considered plant and machinery. Our specialists provide services such as valuing assets, identifying specific items individually so that each item of plant and machinery obtains the correct rate of tax relief.

If I buy or sell my property, why would I need to know about Section 198?

As of April 2014, when a commercial property is bought or sold the value of capital allowances will need to be agreed between the buyer and seller. To do this, an ‘election’ needs to take place in accordance with Capital Allowances Act 2001, sections 198 to 200 is generally called a ‘section 198 election’, Section 198 related to a purchased property. If the buyer and seller do not agree a value, either together or via a HMRC first tier tribunal, then Capital Allowances cannot be reclaimed at a later date, which means the buyer loses any Capital Allowances.

When is qualifying expenditure incurred?

Qualifying expenditure on plant and machinery can be incurred by the purchase, construction or refurbishment of a commercial property in which the fixtures are part of that expenditure. It can be incurred by the business owner or by someone who makes a contribution to another person’s costs. This can often happen when a landlord makes a capital contribution (to qualifying plant and machinery) that forms part of the tenant’s fitting out costs. In this case, the landlord can claim capital allowances covered by the contribution, even though the plant and machinery is owned by the tenant.

Does my solicitor really need to know about capital allowances?

With the revision to legislation from April 2014, a buyer could be significantly out of pocket if they miss out on capital allowances since capital allowances can no longer be claimed if they have not been identified at purchase, which means in many cases, solicitors are being blamed for not advising their clients on these areas of tax law. Headley Meredith Associates work with solicitors to deliver the expert specialist advice and services necessary to ensure this matter is handled properly and to everyone’s best advantage.

Is this a tax loophole?

Absolutely not- HMRC introduced Capital Allowances as an incentive to encourage investment into commercial property and to kick start the economy. Tens of thousands of Capital Allowance claims are processed by HMRC every year. Claiming these allowances is a right, not a privilege.

How would my accountant react to this?

We work with your accountant to achieve the best results for you. We only deal with Embedded Capital Allowances claims and no other areas of accountancy, so we do not conflict with the services your accountant offers. We save accountants the trouble of having to hire their own team of specialists necessary to deal with Embedded Capital Allowances claims, as we already have our own team of specialists.

My accountant says that undertaking a capital allowances claim will result in a higher Capital Gains Tax liability on disposal. Is this true?

Not at all. This a commonly held misconception among accountants about Capital Allowances claims. If needed, we can give your accountant full details about the legislations which makes this clear.

My commercial property is held in a pension fund; can I claim?

Unfortunately, not- only commercial property that is owned by an individual or company can claim for Embedded Capital Allowances. Commercial property also includes furnished holiday lets which meets the government’s qualifying criteria.

What are Enhanced Capital Allowances?

The Enhanced Capital Allowance (ECA) scheme is a part of the government’s programme to manage climate change. It provides businesses with enhanced tax relief for investments in equipment that meets published energy-saving criteria.

Can I claim Capital Allowances on solar panels?

From April 2012, HMRC confirmed that Capital Allowances may be claimed on solar panels and other electricity generating equipment. The costs are to be classed as “Special Rates” expenditure, however the Annual Investment Allowances may still be applied.

What are the implications if I dispose of commercial property post April 2014?

All property transactions that take place post April 2014 will require you as the commercial property owners to identify the unclaimed Capital Allowances prior to, or at the point of sale. This can be done with the help of your advisors and a capital allowances specialist. Failure to do this will mean that the benefit is lost for both you, the vendor, and the purchaser forever.

What would be considered as a commercial property?

A commercial property refers to buildings or land intended to generate a profit, either from capital gain or rental income. This would include offices, hotels, care homes, shops, restaurants, warehouses, factories, industrial units, public houses and more.

What can’t I claim capital allowances on?

A commercial property owner is unable to claim on items that are acquired under an operating or finance lease, land structures such as bridges, roads and docks, buildings, water and gas systems and purchases made on the base of business entertainment such as a yacht.

What is the pooling requirement?

The vendor must have pooled their expenditure which qualifies for capital allowances. This means that the vendor needs to establish how much expenditure they have incurred on fixed plant and machinery and integral features and add it to a pool. They do not actually have to claim any writing down allowances; it is just a matter of recognising what has been spent. This expenditure could have been incurred as part of an extension or alternation to the property but it is possible that a significant proportion of this will have been embedded in the price they paid for the property.