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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

In the current market with lower loan to values, government policy tightening the ability to mitigate tax through carried forward losses and loan interest payment.  Capital Allowances remains one of the key ways to obtain a significant tax saving against property expenditure.  Here we set out what the benefit looks like for a business or an investor.

Not fully utilising the benefit of Capital Allowances on a development will ultimately reduce profits after tax for a business or lower the returns on an investment.

Often for a business or investor embarking on a development, its primary concern is the management of costs to deliver the project within budget.  Whilst the claiming of Capital Allowances does not reduce the outlay of expenditure to pay for such developments, they do reduce costs post completion.

The development of a standard Cat A office which costs say £10m to build, will typically attract Capital Allowances of up to £4.5m.  In benefit terms, if the property is to be held by an owner occupier or investor deriving an income, paying tax at say 20%, the total benefit to them would be a £900,000 cash saving, by reducing the amount of tax which would otherwise be paid.

From a feasibility point of view, it could therefore be argued that the net cost of the development is rather £9.1m, albeit the allowances are claimed over a number of years.

The benefit attained, is directly correlated to the given tax rate payable by the claimant.  Therefore, the benefit to a high net worth individual, who could be in a partnership, paying 45% tax rate is going to have a higher cash benefit than for a corporate tax payer of currently 19%.

Irrespective of the benefit attainable, research as shown that majority of claims are not processed, down to a variety of reasons, which means that in our example £900,000 of tax revenue is passed back to HMRC.

Now not all parties can claim Capital Allowances, with the most common reason being that the development is to be held as trading stock with the intention to sell on once completed.  In this scenario, the Capital Allowances should still be quantified so that they can be included within the heads of terms.  By highlighting to a potential buyer, the unclaimed value of Capital Allowances whilst may not always lead to a higher purchaser price, but a significant value can still be added to the deal as part of the overall negotiations.

Finally, for REITs (Real Estate Investment Trusts) and PAIFs (Property Authorised Investment Funds), who are legally required to claim Capital Allowances under a shadow tax regime.  Whilst there is no direct tax benefit, as tax is paid at an investor level, it does however provide a benefit by retaining cash in the business by reducing the amount that has to be distributed to the investors via a PID (property income dividend).

To discuss this article or if you have any general Capital Allowance queries, then please get in contact with one of our Directors.