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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.

There have been several changes to how offshore investors are taxed and nearly all have resulted in increasing the tax payable, reducing the returns on investment; consideration of Capital Allowances to reduce their tax bill should always be made and for offshore companies the savings equate to £190,000 in every £1,000,000 of expenditure incurred.

There have been two main changes to how offshore investors are now taxed:

From April 2019 – Offshore Investors Subject to Capital Gains Tax

Offshore investors are now taxed on gains on their property from April 2019 but it is likely that the effects of this won’t be felt until 2021 or beyond.

Capital Allowances though can be used to reduce the amount of capital gains tax on sale, with SPVs able to potentially further enhance their savings by way of balancing allowances.

From April 2020 – Offshore Investors Brought Within UK Corporation Tax Legislation

Whilst initially the tax rate has fallen from 20% (non-residents) to 19% (UK corporation) there are rumours that the corporation tax rise will be increased in the coming months, potentially up to 24%.

This coupled with restrictions in both interest rate relief and the amount of losses that can be carried forward has given rise to increased tax liabilities for offshore investors, reducing returns on investments.

Capital Allowances are the only way to reduce the taxable profit and there are more opportunities than ever before to reduce both tax on income and on the gain at sale.

Opportunities to Claim

Offshore companies have significant opportunities to claim tax relief through the following:

  • Unclaimed allowances on historic expenditure; there is no time limit to making a claim on historic expenditure, as long as you still own the fixtures
  • New Structures & Buildings Allowance
  • Land Remediation Relief at 150%; this can only be claimed by UK companies so previously excluded offshore entities

Offset Taxable Income & Capital Gains Tax

As an example a property is acquired for £10,000,000 and sells for £12,000,000 after 3 years. Taxable income, per annum, after all deductions, is £300,000.

The tax on all 3 years income could be offset using Capital Allowances (£900,000 x 19% = £171,000).

In addition, the tax on the capital gain (£2,000,000 x 19% = £380,000) could also be reduced by writing down at the relevant rate. If the company were an SPV and ceased to trade then it may also be possible to enhance the tax savings by claiming a balancing allowance.

Capital Allowances More Complex

The Capital Allowances legislation is becoming more complex so there will be changes required by investors to capture these allowances. Every transaction is unique, has a valuation aspect and requires legal entitlement checks, and together with the additional due diligence requirements of Structures and Buildings Allowances they are not guaranteed or simple to claim.

A suitable qualified, regulated, and experienced advisor should be part of the team for every transaction.

What steps should be taken?

  • Acquisitions – carry out due diligence at Heads of Terms stage
  • Disposals – check if you have claimed and retain the benefit using a S198 election
  • Developments / refurbishments /fit outs – review and claim all expenditure
  • Historic Expenditure – schedule list of properties and dates and quantum of historical spends