Companies: property transactions capital allowances

Capital allowances are available for property transactions

If you are buying, selling or refurbishing a property for business use, make sure you maximise your tax relief.

We have summarised the main points for you.

For the seller – it means the value agreed becomes the disposal proceeds of the fixtures within the building.

To ensure the most tax efficient outcome, look at the disposal value to be brought in to the seller’s capital allowance computation.

For the buyer – it becomes the fixed asset addition figure and capital allowances can therefore be claimed.

Year-on-year tax relief is available at 18% for plant and machinery and 8% for integral features, such as air conditioning or electrical systems.

Top tip: agree the fixtures value at an early stage during the buying process, and involve solicitors and tax advisors.

Refurbishment costs – maximise your tax relief

The Annual Investment Allowance (AIA) limit is £200k. You can allocate this against qualifying assets, such as plant and machinery, fixtures and fittings and integral features.

Top tip: look at your refurbishment costs and use the quotation documents available to maximum the tax relief.

Some costs could be a ‘revenue’ rather than ‘capital’, (if they are replacements of existing assets or have an expected lifespan of less than 2 years). Most importantly you should transfer and expense these items to the profit and loss account to maximise your tax savings. Otherwise, only minimal relief is available if revenue items remain capitalised.

It pays to go green

Will your refurbishment project will exceed £200k? Maximise your tax relief by utilising energy efficient additions. In most instances you can achieve 100% relief on the cost.

Have you fully used your Annual Investment Allowance (AIA)?

Short-life asset elections are another way to maximise relief, especially if your AIA has been extinguished on other assets. This is available where assets are due to be disposed of within 8 years of being acquired. Each asset goes into its own pool (you can group similar assets together) and the balance is written down over the course of 8 years. A balancing adjustment is then brought into account on the disposal of the asset so that relief is claimed earlier, based on the level of proceeds.

If the asset is not disposed of within 8 years, it is transferred to the main pool. You can obtain the relief earlier if items are assigned to the general capital allowance pool and written down over a longer timeframe. It is important to look at the timing of additions and when invoices are raised.

Is your company’s year-end approaching? Firstly, maximise your relief in the current period, after that, use the following accounting period’s AIA if the work will be spread over the accounting period-end.

R&D tax relief on assets purchased

If you are engaging in R&D activities, up to 100% relief is available on the cost of assets used in R&D. The amount of tax relief available at 100% will be dependent on the proportion of time these assets are used in your R&D activities. It is worth noting that this is also available on the purchase or construction of buildings in some circumstances.

For more information

We can help you to maximise your business’s tax relief using capital allowances and the annual investment allowance, please contact:
Linda Warner or Chris Boulet, or call us on:

01483 416232