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Capital v Revenue – Understand The Risks v Benefit

As we are fast approaching the self assessment filing deadline for individuals and the amendment window for corporate entities with a year end of March, understanding the importance of what constitutes capital or revenue expenditure, and the risks and benefits associated with it, is extremely important.

24 Jan 2024

Written by:

First Year Allowances for Corporate Members of Partnerships

In a positive move HMRC have updated their capital allowances guidance for partnerships stating that partnerships with underlying corporate partners can claim first year allowances

19 Jan 2024

Written by: Abu Choudhury

Substantial Unclaimed Capital Allowances On Existing Assets

Capital Allowances provide an opportunity to save substantial amounts of money in a lean market yet many property owners and occupiers are already sitting on vast savings without even knowing it.

23 Oct 2023

Written by: David Gibson

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Latest News

Capital v Revenue – Understand The Risks v Benefit

24 Jan 2024

As we are fast approaching the self assessment filing deadline for individuals and the amendment window for corporate entities with a year end of March, understanding the importance of what constitutes capital or revenue expenditure, and the risks and benefits associated with it, is extremely important.

First Year Allowances for Corporate Members of Partnerships

19 Jan 2024

In a positive move HMRC have updated their capital allowances guidance for partnerships stating that partnerships with underlying corporate partners can claim first year allowances

Substantial Unclaimed Capital Allowances On Existing Assets

23 Oct 2023

Capital Allowances provide an opportunity to save substantial amounts of money in a lean market yet many property owners and occupiers are already sitting on vast savings without even knowing it.

The Risk to Lawyers of Not Correctly Addressing Capital Allowances

23 Oct 2023

Solicitors acting for clients on a purchase or disposal of a commercial property must ensure they correctly address capital allowances; failure to do so may give rise to reputational and / or financial risk.

Maximising Capital Allowances and Avoiding Pitfalls Through Timing

23 Oct 2023

The rules surrounding the transition between Super Deduction and Full Expensing can be complex and the importance of fully analysing and understanding any contract for construction or purchase is significant.

Use Capital Allowances to Help Pay for Higher Spec Offices

23 Oct 2023

On a typical £1m CAT B fit out the landlord or occupier, whoever is incurring the expenditure, could recover up to £250k by claiming Capital Allowances.

HMRC Capital Allowances Enquiries Focusing On Certain Sectors

26 Sep 2023

An increasing number of claims being submitted to HMRC are not fully compliant with the legislation, and in some cases are double what they should be, particularly in certain industry sectors.

Unearthing Hidden Treasures – LGT Wealth Article

01 Sep 2023

Veritas Director David Gibson was recently interviewed by Nicholas Duffy of LGT Wealth Management for thoughts on how family offices and property owners can identify Capital Allowances to help leverage other investments. Click here to read in full

Offset ESG Costs With Capital Allowances

09 Aug 2023

The impact of both ESG and MEES on the property sector is resulting in significant capital investments. To incentivise and reduce the net cost of capital investment, tax relief is available by way of capital allowances.

The introduction of new rules in April 2014, meant that for a Purchaser to secure Capital Allowances they had to enter into an election with the Seller within 2 years after completion.  From next month, any deals completed soon after this date are now fast approaching the deadline risking losing out on the tax relief altogether.

For example, if you had acquired a property in May 2014 and the Seller had not claimed Capital Allowances, in order for the Purchaser to make a claim they must obtain a signed election before May 2016 or lose the allowances.  It is worth remembering that this rule change risks causing not only a loss of tax relief for the Purchaser, it also will deny the opportunity for the Purchaser to abstract a benefit upon disposal.

Potential Loss                                  

So what is the potential loss in cash terms?  If we take our example of a purchase of say an office building in May 2014 for £10m, where the Seller acquired the property in 2007 and had inherited an s198 election for £1 on their purchase.  Then as part of an asset management initiative before sale the Seller refurbished all the office cores spending £2m in the process.  They then sell to our purchaser in May 2014, but did not get around to claiming Capital Allowances on the £2m refurbishment.  Under the new rules the Purchaser must get the Seller to enter into an election to pass the benefit of the unclaimed Capital Allowances or lose out.

This will require the Purchaser quantifying the unclaimed allowances on the Seller’s behalf, which based on a £2m refurbishment could be as much as £1.6m of allowances or £320,000 in cash terms, based on a 20% corporate or overseas income tax payer.

Goodwill

The ability to get the Seller to cooperate to sign up to an election may come down to relying on the goodwill of the Seller although if the purchase contract has been drafted robustly it will provide for a cooperation clause to allow for such an event.  In the case of buying through receivership or administration, often Capital Allowances are completely overlooked as being too difficult to pursue; however, there are options available and Veritas Advisory has recently been successful in securing significant allowances in such a scenario.  There is also the final option of going to First-Tier Tribunal, a course of action that we are likely to see grow as these new rules bed down.

If you are a client or have acted for a client who has purchased property, then please call one of our Directors who will provide a no fee review to assess the Capital Allowances position.