Capital allowances for commercial property are a valuable tax relief that can significantly reduce your tax bill. They allow businesses to deduct the cost of certain assets from their profits before tax.
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What Is A Capital Allowance For Commercial Property?
Capital allowances let you claim tax relief on assets you buy and use in your business. For commercial property, this can include things like heating systems, lifts, and air conditioning.
These allowances apply to various types of commercial properties:
- Offices
- Retail shops
- Factories
- Warehouses
- Hotels
- Restaurants
To claim capital allowances, you must:
- Own the property
- Use it for business purposes
- Have qualifying expenditure
The main types of capital allowances for commercial property are:
| Allowance Type | Rate | Details |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% | Up to £1 million per year |
| Writing Down Allowances (WDA) | 18% or 6% | Depends on asset type |
| Structures and Buildings Allowance (SBA) | 3% | For construction costs |
The AIA lets you deduct the full cost of most plant and machinery up to the annual limit. This is particularly useful for businesses making large investments.
Writing Down Allowances are used for assets that don’t qualify for AIA or when you’ve exceeded the AIA limit. The 18% rate applies to most plant and machinery, while the 6% rate is for “special rate” items like electrical systems.The Structures and Buildings Allowance provides relief on construction costs for new commercial buildings. It’s claimed at 3% per year over 33 years.
When buying a commercial property, it’s important to identify all potential capital allowances. This can include:
- Heating and cooling systems
- Lifts and escalators
- Fire alarms and security systems
- Electrical and lighting systems
- Plumbing and sanitary ware
How do I claim capital allowances?
To claim capital allowances:
- Identify qualifying expenditure
- Calculate the allowance
- Include it on your tax return
It’s often beneficial to seek professional advice, as the rules can be intricate.
Can I claim capital allowances on an old building?
Yes, you can claim on both new and old buildings. For older properties, you may need to gather information from previous owners.
What happens to capital allowances when I sell the property?
When selling, you’ll need to agree on a value for the fixtures with the buyer. This is done through a “section 198 election“.
How do you calculate super deduction?
As a business owner, trying to make sense of all the different capital allowances available can be a right headache. But what if I told you that there’s a brilliant opportunity waiting for you, one that could significantly boost your tax savings and help your business thrive? Let me introduce you to the Super Deduction, a powerful tax incentive that’s been making waves in the UK business community.
Picture this: you’re the proud owner of a manufacturing company, and you’ve been eyeing up a shiny new piece of machinery that could revolutionise your production process. You’ve done the maths, and you know that this investment could take your business to new heights. But there’s just one problem – the cost. That’s where the Super Deduction comes in.
According to the UK Government’s Super Deduction Factsheet, businesses like yours can claim a whopping 130% capital allowance on qualifying plant and machinery expenditures made between 1st April 2021 and 31st March 2023. Let that sink in for a moment. For every pound you spend on eligible assets during this period, you can claim a deduction of £1.30 against your taxable profits. It’s like the government is handing you extra money to invest in your business!
Let’s say you decide to take the plunge and purchase that state-of-the-art machine for £100,000. Under normal circumstances, you’d only be able to claim a portion of that cost as a capital allowance each year, gradually reducing your taxable profits over time. But with the Super Deduction, you can claim a staggering £130,000 deduction in the very first year. That’s an extra £30,000 in tax savings, straight into your pocket.
But the benefits don’t stop there. Imagine you’re a construction firm looking to expand your fleet of vehicles. You’ve had your eye on a new fleet of electric vans, but the upfront cost has been holding you back. With the Super Deduction, you can claim that 130% capital allowance on each and every one of those vans, as long as they meet the qualifying criteria. Suddenly, that eco-friendly fleet upgrade seems a whole lot more affordable.
Of course, as with any tax incentive, there are some rules and regulations to comply with. That’s where seeking expert advice can really pay off. A knowledgeable tax advisor can help you identify which assets qualify for the Super Deduction, ensure you’re claiming the maximum allowances possible, and keep you on the right side of HMRC.
How to Maximise Your Capital Allowances?
Claiming capital allowances on your commercial property can be a complex process, and it’s important to get professional advice to ensure that you are claiming all the allowances you are entitled to. Here are some tips for maximizing your capital allowances:
- Keep Accurate Records: To claim capital allowances, you will need to keep accurate records of all the assets you have purchased for your commercial property, including receipts and invoices. Make sure you keep these records up to date and in a safe place.
- Claim Allowances Every Year: Capital allowances can be claimed every year, so make sure you are claiming them on your annual tax return. If you miss a year, you may be able to carry the allowance forward to future years, but it’s always best to claim them as soon as possible.
- Plan Your Purchases Carefully: When purchasing assets for your commercial property, it’s important to plan carefully to maximize your capital allowances. For example, if you are planning a major renovation or refurbishment, it may be worth splitting the cost over several years to take advantage of the annual investment allowance.
- Consider the Timing of Your Purchases: The timing of your purchases can also affect your capital allowances. For example, if you purchase an asset just before the end of the tax year, you may be able to claim the full allowance in that year, rather than having to wait until the following year.
Are there any assets that don’t qualify for capital allowances?
Some items don’t qualify, such as land, carpets, and general office furniture. However, these may be eligible for other tax reliefs.
How long can I claim capital allowances for?
You can claim capital allowances for as long as you own and use the asset in your business. For some allowances, like the SBA, there’s a fixed period of 33 years.
Sell Your Commercial Property Fast & Hassle-Free
If you are planning to sell your commercial property, it’s important to consider the impact of capital allowances on the sale price. When you sell a property that has had capital allowances claimed on it, you may be required to pay back some of those allowances to HMRC.
This is known as a balancing charge, and it can have a significant impact on the sale price of your property. It’s important to factor this into your negotiations with potential buyers and get professional advice on minimising the impact of any balancing charges.
Alternatively, if you are looking to sell your commercial property quickly and with minimal hassle, you may want to consider selling to a specialist buyer like Property Saviour. As experts in commercial property, we can provide you with a fast, fair, and hassle-free sale.
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
