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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.

In an environment of squeezed returns, the amount of tax being paid by businesses and investors is given increased scrutiny.  One of the only ways to receive tax relief on property expenditure is via Capital Allowances and often over looked still, is the ability to attract the relief on second hand purchases.  Here we provide a simple reminder of what to do when buying a property.

The ability to claim Capital Allowances on second hand acquisitions is often either ignored by the client and their advisors or perceived too much hassle to warrant further investigation.  Typically, any property transaction will have a level of unclaimed Capital Allowances which are up for grabs.  The amount is down to the type, age and specification of the property in question and so there is no one answer fits all, rather each transaction has to be viewed in isolation.  That said, a specialist Capital Allowances advisor will from minimal detail be able to provide a client, once they have gone under offer, an indication of the level of benefit at stake.

The Seller often will not make the Buyer aware of any unclaimed allowances and so the onus is often on the Buyer to drive the conversation.  Here are our top 5 points to ensure you address Capital Allowances and where applicable, provide future tax relief to increase investment returns or drive profits up.

  1. Check the Heads of Terms

The heads of terms may highlight to a Buyer the availability of unclaimed Capital Allowances.  Marketing of these allowances as a negotiation tool will often arise where the Seller has incurred expenditure recently, holds as trading stock, cannot use the allowances post sale or cannot claim.  However, often the Buyer will be entitled to allowances the Seller is not so  there will still be a need to understand the validity of the value of Capital Allowances and whether any contractual provisions are required.

  1. Don’t be put off by N/A or nothing to claim in the replies to enquiries

This is a common position adopted by Seller’s lawyers, often because they are not sure of the position.  Since the rule change where the unclaimed Capital Allowances must be quantified and elected over, the onus is now on the Purchaser to push back and make their own enquiries as to the availability of Capital Allowances.  For example, if the Seller was the first buyer after April 2008 then they would have entitlement to claim Integral Features but would require that value to be calculated and elected across for the Buyer to take the onward benefit.

  1. Get an understanding of what benefit is at stake

Often Capital Allowances, if addressed, are raised at the last hour and so there can be a tendency to drop them so as to not risk the deal stalling.  We have often seen extended exchanges when the level of benefit is immaterial and so getting a third party view as to what the position is can be invaluable and if immaterial, it ticks the box and removes the risk of any unnecessary delays.

  1. Contract is king

With the change in legislation, under s187A of the Capital Allowances Act it now requires that for the Buyer to claim any historic unclaimed allowances, there must be an election to pass that benefit across within 2 years of completion.  Furthermore, the Seller must satisfy the pooling requirement, which simply means recognising the agreed value in their next tax return.  Contrary to some beliefs, there should be no tax impact on the Seller.

  1. Buy yourself some time

Most deals are time pressured and Capital Allowances can be seen as an annoyance for the Seller to deal with, so it can often be a better approach to put a provision in the sale contract.  This should agree to pass over the unclaimed Capital Allowances, to be calculated by the Buyers Capital Allowance advisors and elected within a prescribed time limit; there is no legal requirement to agree the figures prior to completion as long as the contract wording is sufficient to facilitate a claim post transfer.  This removes those pressure points but gives the Buyer the ability to revisit post completion, with the knowledge of the Sellers future cooperation.