We suspect that Guest House and Bed & Breakfast owners are one of those groups who have generally failed to investigate making a capital allowances claim on the acquisition of their property. Claiming capital allowances on these types of property is relatively straight forward for specialists such as ourselves. The only challenge, if one could term it as such, being frequently the guest house is occupied by the owner’s family meaning this has to be taken into account when apportioning qualifying and non-qualifying assets i.e. the owners occupy their part of the building as a residential property.
The following information is given to try and persuade you as the Guest House/ B&B owner to take the next step and contact us for a free review of your potential claim.
The Legal Perspective:
When one is presented by a tax saving initiative it is natural to want to know whether what is being proposed is legal. The answer to this, for capital allowance claims is a definite yes.
Capital allowances legislation can be traced back to the 1870’s but the current legislation is The Capital Allowances Act 2001 which is amended annually by the Government of the day. Therefore capital allowances are a tax relief enshrined in statute.
What are Capital Allowances?
Capital Allowances can be claimed on any expenditure which brings into existence (or improves) an asset with an enduring benefit for the trade. The purpose of capital allowances is to protect the owner’s profits from taxation and therefore reduce their tax bill. If the property has been owned for more than one financial year then a tax rebate may well be due and less tax will be paid for many years to come.
How does this apply to commercial property including Guest Houses & B&Bs?
When you bought your property you probably weren’t aware that the fixtures / integral features within the property could be valued for capital allowances purposes. This may include electrical systems, heating systems, hot & cold water systems, kitchen equipment, sanitary ware and other items which support your trade. Your accountant may have valued what are termed the “loose chattels” such as furniture and carpets but these may represent a small percentage of what may be claimed. The good news is, that in most cases, there is no time limit for making a claim so you haven’t missed the boat even if you bought the property some years ago.
A Useful Example:
Let us take a guest house purchased in 2005 for £500,000 excluding goodwill and loose chattels claimed by the accountant. 10% of the property is used for the owner’s private accommodation. This effectively reduces the value of the property used for commercial purposes to £450,000. With this type of property it would not be uncommon to find that 25% of the purchase value may be claimed as capital allowances so £450,000 x 25% = £112,500. For a 20% tax payer this would equate to a tax saving over time of circa £23,000 or £46,000 for a 40% taxpayer.
Why hasn’t my accountant informed me about this?
This is the most common question asked and there is no one answer to this question. There are many misconceptions held by accountants which include:
i) making a capital allowances claim affects the amount of capital gains tax which may be payable on disposal of the property. This is untrue as capital allowances should in 99% of cases be excluded from any calculations in respect capital gains.
ii) the purchase contract contains values for fixtures and fittings which are binding.
This is not case as these figures are not binding on the HMRC as capital allowances claims are governed by statute law rather than a purchase contract
iii) any tax advantages are clawed back on sale of the property. Again this is not normally the case as long as the seller is given the correct advice either by their current professional advisers or by contacting a specialist such as ourselves.
Lastly an accountant does not have the required taxation and surveying skills required to undertake the valuation of the fixtures and integral features in a property. It’s a case of knowing exactly what may be claimed and how to value it based on HMRCs legislation and guidance.
What should I do if I want to investigate further?
The simplest advice we can give is to either contact us via our main number of 02393 074515 or complete the Capital Allowances Free Review Form and submit it to us. We assure you that if a claim is possible and you use our services there will be no downside to your making a claim.