The Annual Investment Allowance (AIA)
We have written at some length about the major changes to the capital allowances fixtures regime which came into full effect in April 2014. This has focused much attention on the risks now faced by buyers of commercial property, and their advisers, if they do not consider capital allowances during the purchase transaction.
However there is also some good news for property buyers who can enjoy an unusually high level of tax relief for expenditure on fixtures incurred during 2015. The key is that the Annual Investment Allowance is set at £500,000 at least until the end of 2015. (Since writing this blog the AIA has been confirmed as £200,000 from 1st January 2016)
Why this is Good News
Currently if somebody acquires, or indeed builds, or redevelops a commercial property they may well be able to claim the capital allowances for expenditure on fixtures. This includes lifts, electrical systems, heating and even carpets to name but a few items.
With the Annual Investment set at £500,000 (£200,000 from 1st January 2016) this means that it may well be possible to claim up to this value of expenditure on fixtures as tax relief. For example a company or individual who undertakes an extensive refurbishment of a hotel may incur expenditure on fixtures of say £200,000. If this expenditure is incurred in 2015 then the total amount may be used to protect profits from taxation if claimed in the tax year the expenditure was incurred.
However, as things stand at the time of writing, the Annual Investment Allowance will return to its former level of £25,000 in January 2016 unless the current legislation is amended. This means, where possible, capital expenditure should be incurred before the end of December 2015 to maximise the available tax relief.
If you are considering purchasing commercial property then obviously the availability of the Annual Investment Allowance is not the only consideration but it should be factored in to the decision making process. It also highlights even more the importance of establishing the capital allowances position prior to completion on a property. For example if two properties are being considered it may well be the case that a fixtures claim is possible on one property but not the other. This knowledge could be a deciding factor in purchasing a property which will afford the maximum tax relief in the future.
We wait to see whether the Government will maintain the current level of Annual Investment Allowance beyond 31st December 2015 but if they do it will certainly help the economy to keep on the path to recovery. However we would encourage any prospective property buyer to consult with a specialist such as ourselves see www.curtisplumstone.com as early as possible within the process or the opportunity may be lost to claim capital allowances on fixtures.
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