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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

The Directors of Veritas Advisory were involved in the initial HMRC consultation into the interaction of Capital Allowances under the REIT legislation.  REITs operate under a shadow tax regime, which requires the mandatory claiming of all Capital Allowances.  Veritas Advisory in working with many of the REIT companies have an agreed approach that addresses one of the key compliance conditions facing a new REIT.

Converting to a REIT does not remove the tax reporting requirements even though there is no tax to pay at the vehicle holding level, to the extent it satisfies the required conditions, it does not pay any corporation tax on profits or capital gains tax on disposals.  Instead the tax is generally applied to the investor level providing they themselves do not have a tax exemption. But Capital Allowances must be claimed.

Capital Allowances are a form of tax relief which are available on certain types of property expenditure, whether this be on the acquisition of second hand assets by buying property or on the installation of new qualifying assets on developments, refurbishment or fitting out of property.

Whilst there is no tax advantage for a REIT to claim Capital Allowances, as there is for a direct investment in property, Capital Allowances do however provide an advantage by enabling more cash to be retained within the business for re-investment purposes.

Under the REIT legislation 90% of the profits must be distributed to shareholders, known as the property income dividend or PID. However, mandatory Capital Allowances are deducted from the profits that must be distributed, reducing the size of the PID to be issued. It could be argued therefore that Capital Allowances for a REIT, despite not offering a tax saving, remain extremely valuable as 90% of the value of the Capital Allowances can be retained within the business.

That said it is possible for a REIT to have both tax-exempt income and non-tax-exempt income, with the latter not complying to the REIT rules, for example, a new build development which is sold within 3 years of practical completion.  For the non-tax-exempt part of the business, the normal benefit of claiming Capital Allowances applies, reducing the tax liability on profits.

In order to satisfy the REIT condition of it being required to claim Capital Allowances, the onus is on the REIT to demonstrate that it has claimed where it had the entitlement to do so.  It is not acceptable to ignore or to apply blanket figures, as the REIT has to demonstrate that it has adhered to the same Capital Allowance rules as would a direct property investment.  There are two areas where this will need to be considered, on conversion and on all annual capex:

  • On Conversion

All properties which are to be brought under the tax-exempt business will need to demonstrate that Capital Allowances have been claimed to the extent they had entitlement to do so. This requires reviewing the entitlement position for Capital Allowances on each property, both at the time of its acquisitions and also on any subsequent expenditure.

  • On All Annual Capex

For each accounting period, the REIT must demonstrate that it has complied with claiming Capital Allowances where it had the entitlement to do so.  This applies to any points of expenditure, such as on new acquisitions, developments or even on lease incentives in the form of capital contributions

The question of how best to address this requirement has led Veritas Advisory to develop a REIT compliance service which it has adopted for a wide number of existing REIT companies.  In essence, it looks at putting in place procedures which will provide the necessary acknowledgement to HMRC that Capital Allowances have been fully considered by an independent Capital Allowances advisor across all its property expenditure.

Where a claim for Capital Allowances is identified, the value must be calculated in line with the Capital Allowances legislation.  Veritas Advisory will engage its team of consultants to prepare the resulting claim, which will be included within an annual REIT compliance Capital Allowances summary, providing the REIT with proof of compliance should it be called upon.

Given the relative benefit to the REIT in claiming Capital Allowances for the tax-exempt property income business, a claim is only progressed where a material benefit is established.  Through the use of our in-house cost bench-marking and sector knowledge of estimated claim values, the claim preparation process is streamlined to reduce the compliance cost to the REIT, but at the same time delivers full compliance.