Insights
Seminars & Events
News

Latest Insights

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

Archive

 

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 are often not addressed at the time of purchase due to clients not fully understanding the value of benefit at stake and the potential to miss out altogether if not picked up before completing on the deal. Here we set out the factors which determine the benefit and their value.

The difficulty to claim Capital Allowances on a second-hand purchase is that it is not an obvious opportunity to claim, but often claims are still available. The original claim is based on an apportionment of the purchase price and so the age or quality of the assets does not matter, rather the price paid for those assets and to establish the extent to which those assets have already been claimed on.

New legislation has now made it a complete loss scenario if the unclaimed Capital Allowances are not quantified and agreed to be passed across as part of the sale. This does not mean the value of allowances has to be quantified before completing the deal, as there is a 2-year time limit within which to agree to an election, but ideally it should be considered before exchange to negotiate the most favourable position.

The question of benefit is not a simple case of plugging in a postcode finder for the Capital Allowances figures to be self-generated, nor can any standard qualifying percentages be applied. To that extent, it does require someone to assess, typically a specialist Capital Allowances advisor, to determine whether there is a material value of benefit which is worthwhile pursing.

The added difficulty with purchase claims is that the Buyer must establish clear entitlement to claim. If the Seller cannot claim such as a pension fund or holds the property on a trading account, then the Buyer only requires a statement of no claim in the contract. There is still however, the need to check all prior owners of those qualifying fixtures to see to what extent a claim has been made, but this is often attainable through direct enquiries.

If the Seller has claimed, then the simplest way to address the position is to state in the purchase contract that any unclaimed Capital Allowances will pass across to the Buyer. This facilitates the ability for the Buyer to then revisit the position after completion should there be additional unclaimed allowances.

From the Seller’s side there is no impact, as if they have claimed they still hold onto that benefit and often if the property is within single asset entities there is no benefit in retaining the unclaimed allowances. Proposed £2.00 s198 elections which may restrict the Buyer fully are often a default position and should in some instances be challenged, although it is however worth noting that overage claims are still possible.

It is not only the price paid for a property which dictates benefit but also what landlord fixtures are contained within it. Because you must apportion the purchase price between land, buildings and the qualifying plant and machinery, the value of Capital Allowances claimed is a proportion of the purchase price and the assets are valued as at market value at date of completion.

For an unrestricted Capital Allowances purchase claim you may expect up to 24% of the purchase price to qualify for Capital Allowances, dependent on type of property. So, if you were to buy a property for £1m the claim value could be £240,000. In terms of what that benefit looks like in the hands of the client, you simply multiple the total claim value by their given tax rate, so for a high net worth individual paying 45% tax, it would equate to a cash saving of £108,000, so not a cash saving you would want to miss out on.

The second factor which alters that benefit is the extent of qualifying fixtures within the property, typically the qualifying fixtures are the non-structural elements ie not enclosing walls, floors or roofs,  but rather the items which make a building function such as heating, lighting, protection systems down to mechanical door closers, blinds and sanitaryware. So, if you have a property which is highly reliant on such expenditure, such as an office, hotel or care home, then the claim value is going to be higher. Contrast that to an empty retail shell, which is mainly structure and has a smaller proportion of qualifying assets to which Capital Allowances can be claimed on.

It is for this reason that providing general indicative qualifying percentages is dangerous to do and blanket percentages should never be employed; the value of allowances in one office can vary considerably to the office next door due to extent of legal entitlement, type of fixtures and even the rental income and build costs. An initial review, preferably before exchange will help to gauge benefit and to encourage the client to investigate it further, so they are made aware of the potential cash saving that could be missed out on.

Veritas Advisory can provide clients with a free due diligence assessment relating to current or past acquisitions to determine eligibility and the value of benefit at stake.