Should You Purchase A Commercial Property For Tax Relief Purposes?

1. Should You Purchase A Commercial Property For Tax Relief Purposes?

2. Capital allowances was first introduced in the UK in 1964. This could be used to claim for an array of business departments such as R&D, patents and business premise renovations. The UK commercial property sector has however, had very few tax breaks, so many fail to claim or underclaim on the capital allowances available to them. In fact, only 10% of UK commercial property owners have made the claim. The process of capital allowances commercial property can therefore help free up tax expenses for other financial needs of the business.

3. What to claim on with capital allowances commercial property? Claims on capital allowances on the actual building or on the structure of the building, such as the walls and floors, was abolished in 2011. However, capital allowances commercial property were still applicable for plant and machinery and internal building features such as pipes and air conditioning. The technical term for this, as per the Capital Allowances Act 2001, is fixtures. This paved the way

4. for valuable earnings, when purchasing a property, under capital allowances commercial property. How much can you earn? The tax relief can be between 15% and 45% of the cost of the property, depending on the building, for example warehouses being in the lower margins and high-end hotels in the higher margin. To exemplify this, a company paying corporation tax at 19%, and owning a £1 million property could obtain potential tax savings between £28,500 and £85,500 (15% and 45% respectively). There are variables

5. that could affect these figures but the savings shown are arguably very significant. Unfortunately, this can be a fleeting opportunity for many, due to the changes in legislation over the past decade on capital allowances, through uncertainties and other pressures, leading to companies not taking full advantage of capital allowances commercial property. How to claim? Capital allowances can be claimed on renovations by companies, individuals, partnerships and trusts

6. who own commercial property, both freehold and long leasehold. Commercial property owners who have spent vast sums on building and repairs of a property may also qualify for the allowance. The changes to capital allowance laws were first introduced in the Finance Act 2012, and became fully functional in April 2014, which determines the buying or selling of commercial property. The process of qualifying is broken down into the pooling requirement and fixed value requirement. Since April 2014, the pooling requirement came into

7. force. This should be done before the purchase of the building, with the seller having to put the value of their refurbishments through their capital allowances computations, who can then pass the value of the allowance onto the buyer, giving the buyer the chance to claim for tax relief. The second requirement is the fixed value requirement, where seller and buyer must determine the value of the fixtures and have the transfer of information made within two years of completion. Diversifying the claim

8. You can also link the capital allowances to R&D, which comes under Research and Development Capital Allowances. If a company obtains a building with the intent of using this building for the advancement in their R&D department, then potentially the whole expenditure could qualify for a 100% capital allowance, within that accounting period. Therefore, giving your company the boost to become apioneer in scientific and technological research but also saving you money on the acquisition costs of the property. The financial reward The capital allowances commercial property can be a complex process and external help maybe required to help realise it. However, the benefits and the saving potentials means that it is an opportunity that you do not want to lose; an opportunity that will considerably relieve the financial burden of your company and help establish greater scope for the future.