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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: Matt Bell

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.

Single Purpose Vehicles (SPVs) are able to enhance the amount of tax relief when selling an asset by claiming a balancing allowance. Often overlooked, the simple example shown below demonstrates why Capital Allowances should be considered by all SPVs to offset both current and future tax liabilities.

An investor creates an SPV to forward fund an office development for £5million.

After 2 years of rental income of £400,000 per annum, the SPV receives an offer and sells for £6million, closing the company and ceasing the trade.

The interest and other associated acquisition costs equal the rental income for the first 2 years, so there has been no taxable profit on income during ownership.

However, assuming there are £1million of capital allowances available within the property the following tax relief can be realised.

Land purchase                                                                                          £1,000,000

Construction Cost                                                                                  £4,000,000

Total Development Cost                                                       £5,000,000

 

Tax Computation On Sale Without Capital Allowances (Year 3)

Sale proceeds                                                                                           £6,000,000

Less, base cost of development                                              (£5,000,000)

Gross Profit on Sale                                                                £1,000,000

Tax Due @ 19% corp tax rate                                                     (£190,000)

Net Profit on Sale                                                                      £810,000

 

However, £1,000,000 of Capital Allowances have been identified within the property.

Tax Computation On Sale With Capital Allowances (Year 3)

Sale proceeds                                                                                          £6,000,000

Less, base cost of development                                              (£5,000,000)

Gross Profit on Sale                                                                £1,000,000

Capital Allowances Balancing Allowance                     (£1,000,000)

Taxable profit after Capital Allowances                            £0

Tax Due @ 19% corp tax rate                                                      (£0)

Net Profit on Sale                                                                      £1,000,000

 

Increased Return on Investment                                 £190,000

 

The following steps must be taken to claim the capital allowances

  • Appoint CA advisor before transaction takes place
  • Carry out due diligence on all new acquisitions
  • Claim on all current and future expenditure
  • Review all historic acquisitions on current properties
  • Review all historic capex on current properties