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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.

Capital Allowances can provide tax paying companies, individuals and investors (including overseas), with a significant investment gain by reducing the amount of tax payable against income.  In this article we set out the basic requirements that must be satisfied to secure this valuable tax relief when buying property.

For the buyer to take the benefit of claiming any unclaimed Capital Allowances, there are two key requirements that must now be addressed for the purchaser to have entitlement to claim Capital Allowances.

Firstly, the onus is now on the buyer to establish the level of claim available and to then agree a fixed value to which the buyer and seller agree to elect across on completion of the transaction.  The second is that the seller must reflect that elected value by simply pooling the allowances in their next tax return.

The ability to address the first requirement is the harder of the two, as this requires the buyer ascertaining from the seller to what extent, if any, have Capital Allowance claims been made.  Unfortunately, there is no readily available database of values to extract this information from, rather it relies on the due diligence undertaken by the buyer and their advisors.

However, knowing the tax paying nature of the vendor may give rise to a clearer path, whereby if the seller is non-tax paying, such as a pension fund or government body, then providing a statement of no claim is obtained, it removes the need to agree a value.  Rather it enables the buyer to claim on the seller’s expenditure and to look at any past owner’s expenditure.

The wording adopted in the heads of terms, replies to CPSE enquiries and sale contract wording dictates the legal position to determine the buyer’s eligibility to claim Capital Allowances.  Clients have missed out on claims having assumed that the matter had been dealt with, only to find there was insufficient or no legal provision on Capital Allowances, which is frustrating, when a simple challenge would have averted this loss of benefit.

Here at Veritas Advisory we can provide clients with a very quick comment or draft clauses, which will ensure that the purchaser can make a claim post completion.  It is worth highlighting that calculating the quantum of claim is not required at the time of completion, as there is a two year time frame in which to submit an election to HMRC.

Since a rule change in 2014, the strategy of picking up the Capital Allowances until after the deal is completed, is no longer an advisable strategy and can often give rise to clients missing out where they find they have agreed to a seller’s protective clause.  Or if the sale contract is silent, then being reliant on the seller’s goodwill after the deals completion, may be in short supply.

It is however worth pointing out that all is not lost, as even if the sale contract is silent or the buyer’s lawyers are told that there are no allowances available to the buyer, this does not remove the ability for the buyer to make a claim for Capital Allowances.  For example, if the buyer is the first to have entitlement to claim on qualifying fixtures after April 2008, then there will always be a claim based on the introduction of newly qualifying assets under the integral feature rules.

At Veritas Advisory we offer a due diligence service which raises enquiries of past owners on the buyer’s behalf, to assess their entitlement to past claims and in most cases with success.  For most properties, they have undergone many refurbishments over time and this expenditure will often not have been fully claimed against, which can give rise to new claims for our clients.

Should you wish to understand more about our due diligence service on buying property, then please contact one of our directors.