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Capital Allowances Incentives to Increase?

In a positive move to encourage capital investment Rishi Sunak announced in the 2022 Spring Statement plans to expand the Capital Allowances legislation, subject to a consultation process, to be formally announced in the autumn budget and to take effect from April 2023

23 Mar 2022

Written by: David Gibson

Veritas Contribute to UKAA Publication – Improving Returns on Build to Rent

As a member of The UKAA, we were pleased to be invited to contribute to their latest buzz news issue, in which we explain how investors-operators of build to rent can improve investment returns by claiming capital allowances

02 Nov 2021

Written by: Nolan Masters

Veritas Confirmed New Member of UKAA – The Organisation for the UK Build to Rent

Veritas Advisory have now been confirmed as a new member of UKAA, the organisation for the UK Build to Rent sector. 

18 Oct 2021

Written by: David Gibson

Archive

 

Latest News

Capital Allowances Incentives to Increase?

23 Mar 2022

In a positive move to encourage capital investment Rishi Sunak announced in the 2022 Spring Statement plans to expand the Capital Allowances legislation, subject to a consultation process, to be formally announced in the autumn budget and to take effect from April 2023

Veritas Contribute to UKAA Publication – Improving Returns on Build to Rent

02 Nov 2021

As a member of The UKAA, we were pleased to be invited to contribute to their latest buzz news issue, in which we explain how investors-operators of build to rent can improve investment returns by claiming capital allowances

Veritas Confirmed New Member of UKAA – The Organisation for the UK Build to Rent

18 Oct 2021

Veritas Advisory have now been confirmed as a new member of UKAA, the organisation for the UK Build to Rent sector. 

Veritas Supporting Charitable Causes

01 Oct 2021

We have chosen to support four charitable causes reflecting activities that are close to us and to people we know and would like to raise awareness of.

Using Artificial Intelligence for Capital Allowances

27 Sep 2021

Can Artificial Intelligence help claim capital allowances? In addition to preparing detailed claim reports for clients, Veritas Advisory, in partnership with Brunel University and Innovate UK, are applying technology to solve some of the issues, the main one being how to use data efficiently and correctly.

New Case Law – Potato Store is Plant

07 Aug 2021

JRO Griffiths Limited v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKFTT 257 (TC) resulted in the taxpayer winning their appeal in whether or not a warehouse used to store potatoes for a crisp manufacturer is plant.  The taxpayer won on 2 counts.

Estates Gazette Article – Capitalise on Allowances

20 Jul 2021

Veritas Advisory Director Nolan Masters, together with Alex Barnes a Partner at BDB Pitmans LLP, have published an article in Estates Gazette on how capital allowances claims can mitigate the increasing cost of tax on property investment.

New Case Law – Satellites

16 Jul 2021

A Capital Allowances case Inmarsat Global Limited and The Commissioners for Her Majesty’s Revenue and Customs UT/2019/0167 V), has been refused by the Upper Tier Tribunal, in relation to the launch of satellites.

Taxation Magazine Article – The New Super Deduction

04 Jul 2021

In the June edition of Taxation Magazine Veritas Advisory Director Nolan Masters set out how the new super deduction and special rate allowances will affect property owners, occupiers and investors. Click here to read the article in full

Before budgets are set, clients and asset managers should review past landlord’s expenditure to ensure it is being allocated in the most tax efficient way. Confusion can arise around the treatment of the receipt of dilapidation payments or works which may in part be recovered via the service charge.  Here we explain how Capital Allowances should not be ignored in both cases.

When a tenant vacates, there are generally three scenarios that can play out:

  1. The tenant removes the tenant’s fixtures and the Landlord then incurs expenditure to prepare the space in advance of re letting
  2. The tenant pays the landlord a sum of money as a dilapidations payment in lieu of carrying out the work and the landlord undertakes the works
  3. The tenant pays the landlord a sum of money as a dilapidations payment in lieu of carrying out the work and the landlord does not undertake the works

For each of the above there are different tax implications.  The first scenario is the most straightforward, the tenant will be able to take a revenue deduction for any repairs that it is obliged to carry out under the terms of the lease.  The landlord then may incur expenditure to prepare the space for re letting and typically this will be capital works in nature and Capital Allowances can be claimed.

For the second scenario, the cost to return the space back to its original condition is passed onto the landlord.  For repair works which are then undertaken by the landlord, to the extent the dilapidations payment is received, then the landlord will simply nett off the receipt and so the position is tax neutral.  The difficulty can arise where the allocation of the payment is not known and a “commercial settlement” is arrived at.  Here an assessment should be made as to the intended allocation of that payment to the works undertaken by the landlord.  Therefore, if say the landlord incurs £200,000 on works but only receives in £50,000, if the £50,000 relates to repairs which are carried out these are netted off leaving the balance of £150,000 which will be capital and on which the landlord can claim Capital Allowances, ensuring correct allocation to the right pool.

Finally, the landlord may choose not to carry out any such works, then if the property is sold or the landlord moves in it is treated as a capital receipt as compensation for taking it back in a dilapidated state.  If however, the landlord lets it out then the payment is likely to reflect the lower rent that will have been charged and could be taxed as income for lost profits.

When it comes to landlord works which are met by a service charge, then to the extent Capital Allowances can be claimed it will depend on how that payment received is to be treated for tax purposes.  If the service charge sits in a holding account from which the works are paid, then the landlord will not have entitlement to claim Capital Allowances as it is deemed not to have “incurred” capital expenditure.

If however, the landlord pays for the works and the receipt of monies in from tenants is taxed as income, then the landlord will have the entitlement to claim Capital Allowances on that expenditure.

The other point to note is, if the property is only partially occupied then the landlord in any event must have incurred some of the cost of works and therefore will be entitled in any event to claim Capital Allowances on that share.

“To Do”

  • As part of year end capex reviews consider the extent to which expenditure treated as revenue deductions will be affected by the receipt of dilapidation payments
  • Often where the landlord undertakes the tenant’s dilapidation works, it forms part of a wider capital project for which Capital Allowances should be considered
  • Look at how the landlord’s works are paid for and if the service charge impacts on the ability to claim Capital Allowances
  • For properties not fully let, the landlord will always be able to claim Capital Allowances as not fully met by the service charge