Corporate tax rates are set to increase by 30% from April 2023, this means property income and capital gains are exposed to higher taxes, therefore tightening investment margins and cashflow.
Below are three simple ways to improve margins and reduce risk:
1. Acquisitions – Capital Allowances typically increase yields by between 0.25% and 1%
- Capital Allowances are often overlooked in investment appraisals; however, we have advised on some recent transactions where the identification of available capital allowances has assisted in making the deal viable.
- Don’t accept a Seller’s Capital Allowances position at face value, even where a £2 s198 election is inherited. Opportunities may be available to claim due to timing of expenditure, tenancies, tax positions or specifics of the Capital Allowances legislation that many are unaware of.
- Always ask for a second opinion on the legal position; there are no costs for our initial legal entitlement checks or advice.
2. Asset Management – Reduce Cost of Energy Efficiency Requirements
- From April this year commercial buildings must achieve a minimum ‘E’ efficiency standard. From 2028 it is proposed that rating will be ‘B’.
- Capital Allowances can typically reduce the net cost of capital expenditure by up to 45% for Partnerships and individuals and 25% for companies,
- It is not widely understood that using a Capital Allowances specialist can typically identify up to 50% more Capital Allowances than their accountant.
3. Reduce Risk – Capitalised Expenditure v Profit & Loss
- Many clients write off 100% of their construction expenditure in the P & L and not as capital, this is technically incorrect and increases the chances f an HMRC enquiry.
- GAAP requirements mean that building projects and associated professional fees must be capitalised where there are any works capital in nature, such as improvements, changes or additions.
- Only individual works which are a direct repair or replacement qualify as capitalised revenue and can be allocated to the profit and loss; detailed analysis of all building projects will correctly account for the works, maximising savings and reducing risk.
Action Points
Contact Veritas Advisory for free initial advice on the following:
- Acquisitions – Estimates of Capital Allowances and advice on legal entitlement to claim.
- Asset Management – Estimates of Capital Allowances and cash flow forecasts on developments, fit outs and refurbishments