Frequently Asked Questions
What are Capital Allowances?
Capital allowances are a tax relief available when buying, constructing or improving certain types of properties. The relief enables individuals or businesses to deduct the cost of certain types of expenditure from their taxable income, thereby reducing the amount they pay tax on.
Can I claim Capital Allowances?
Yes, if you pay UK tax and own the freehold of a commercial property including furnished holiday lets or you have redeveloped a leased property and you have paid for the plant and machinery contained in the property.
What is commercial property?
Commercial property can include shops, offices, warehouses, furnished holiday lets, hotels, restaurants, care homes, public houses, factories or industrial units. Commercial property which is purchased or leased by an individual or business will qualify for capital allowances provided it is not held in a pension fund or owned by a charity.
What is a furnished holiday let?
A furnished holiday let or FHL is a furnished property located in the UK or EEA (link) that is available for holiday lets on a commercial basis for at least 210 days per year and is actually let for at least 105 days per year. The total periods of longer term occupation, or letting to the same person for more than 31 continuous days, must not exceed 155 days during the year.
What can I claim Capital Allowances on?
Plant and machinery assets can include fixtures and fittings and items other than the moveable furniture etc. These more integral fixtures can include carpets, air conditioning, swimming pools, sanitary ware, kitchens, heating, emergency lighting and wiring to fixed plant, fire equipment, telecommunication installations, signs and security systems. The list of qualifying items is lengthy.
How is the relief given?
Most individuals and businesses have an Annual Investment Allowance of £25,000 for plant and machinery. This allows them to deduct all of the cost of qualifying plant and machinery up to £25,000 against their taxable profits. On expenditure over this amount, the standard rate of capital allowances is 18% as a writing down allowance, although there are other rates depending on the type of expenditure.
Can I amend earlier tax years?
You can amend your tax return upto 12 months from the filing deadline. For example, for 2010/11 tax year an individual has until 31 January 2013 to make an amendment.
Does claiming Capital Allowances affect my Capital Gains Tax position when I come to sell my property?
No, claiming Capital Allowances does not affect your CGT position. It is a common mistake to think that claiming Capital Allowances will reduce your base cost of the property (what you paid for it) therefore increasing the capital gain (the difference between what you paid for it and what you sell it for) when you come to sell. This is not the case.
Has my accountant claimed these allowances already?
Your accountant will probably have claimed Capital Allowances for the assets which you have purchased since the original investment. Items such as fire alarm installations, emergency lighting and intruder alarms are examples of these items which your accountant should have claimed for. However, it is a very complex area of taxation requiring specialist surveying and taxation knowledge and it is likely that your Capital Allowances claim has not been maximised. Unless you have had a specific Plant and Machinery survey on your property detailing all of the hidden fixtures, then your accountant will not have identified all of the inherent plant and machinery within your property. We will work with your accountant to maximise your claim.