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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

When setting up a UK property investment business, the default position is to do so via an overseas special purpose vehicle (SPV). However, this is now being challenged on a number of fronts, including tax, fund administration, increased liquidity and public perception.  In this article, we look further into these drivers and provide a reminder of the key conditions that need to be considered before converting to a REIT.

A UK REIT is a closed-ended publicly traded company that provides it’s investors with access to investment into property assets within a tax efficient wrapper.  When initially launched in 2001 the take up was limited to mainly existing large listed property companies, such as Landsec and British Land, which having built up large property gains, the ability to convert to a REIT enabled them to eliminate any latent capital gains and in return for increased liquidity.

The governing REIT legislation sets out the requirements which must be satisfied in order for a UK property business to be granted UK REIT status.  Here we note some of those “compliance” features, but not limited to:

  • Be solely resident in the UK for tax purposes;
  • Have a listing on a recognised stock exchange, including AIM;
  • Not be an open-ended investment company;

A UK REIT must have a property rental business which forms its tax-exempt business.  Whilst it can have other taxable businesses, the property rental business must:

  • Consist of at least 3 single properties, with no one property representing more than 40% of the total value of properties in its rental business;
  • For each accounting period, distribute at least 90% of its property rental business profits by way of a dividend (known as a property income dividend or PID);
  • At the beginning of each tax accounting period, at least 75% of the REIT’s gross assets must relate to the property rental business or be cash and cash equivalents;

There are clear tax benefits to converting into a REIT, with no UK corporation tax payable on profits or capital gains on the disposal of assets.  It should, however, not be overlooked that REITs are still required to prepare tax returns under a shadow tax regime and as part of this requirement, there is a mandatory requirement to claim Capital Allowances, which in turn provides a benefit by retaining cash in the business which would otherwise form part of the PID.

Instead the dividends from REITs are treated as property income to an investor, subject to withholding tax at the basic rate of income tax.  For some, mainly institutional investors, they are able to gain an exception to such a charge, by registering to receive the dividend gross rather than net and this includes charities, UK companies and pension funds.

Then there is the ability to increase liquidity which the REIT regime allows investors to tap into and at the same time the REIT can benefit by diversifying its investor base, with an internationally recognised investment wrapper and providing the opportunity for future fund raising.

From a fund management point of view, operating it from the UK can have perceived benefits, removing the need for overseas fund administration.

The REIT regime will however not fit every property model, for example, for properties to be part of the tax-exempt business any redevelopment activity whose cost exceeds 30% of the fair value of the property and a disposal is made within three years of practical completion of the development, then it is deemed to fall outside of the tax-exempt business.

With the move by HMRC to bring non-resident landlords under the UK corporate tax regime from 1 April 2020, it can be argued that it further strengthens the pull to bring investments back onshore.

Since the relaxation of the entry rules, including the abolition of the entry charge, there has been an increasing appeal to converting property businesses into a UK REIT, with a greater focus on sector specialists, such as in student accommodation, logistic warehouses, healthcare and the private rented sector.  It therefore seems on reflection, that with income hungry investors, that the REIT option is one that will increasingly be considered, and that the number of listed REITs will only continue to grow.