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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

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.