Since the introduction of the Structures and Buildings Allowance (SBA) from 29 October 2018, Businesses and accountants need to consider […]
26 Aug 25 | Published by John Plumridge
What makes Buildings different?
Business and commercial property owners understand capital allowances are claimable on assets for permanent use in their business. By permanent, HMRC generally means an assets to be used for at least two years or more. Therefore assets such as computers, desks and chairs fall easily into this category. Accountants deal with these types of capital allowances all the time. This is on the basis the supplier invoices make it clear what has been delivered.
Things become markedly more complicated when dealing with the purchase, construction or development of a commercial property. Information and invoices are presented which will inevitably cover claimable and non-claimable costs. The Capital Allowances Act 2001 (CAA2001) at s173 refers to “Plant and Machinery (P&M) Fixtures” being claimable and defines a P&M Fixtures as:-
“plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land”.
Although there is not a definitive list within CAA2001 of these “Plant & Machinery Fixtures” many of them have been established through legal precedent and general acceptance with HMRC. A few examples of what is claimable are listed below:-
- Heating systems including boilers
- Electrical systems connected to qualifying plant
- Lighting systems
- Sanitary ware
- Storage racking
- Air conditioning systems
- Lifts
It is not only the initial cost of fitting these items which is claimable but also any relevant professional fees which need to be apportioned correctly. These would include architects, design engineers fees. In addition contract Preliminaries can also be apportioned.
Why you should Engage a Specialist?
Simply put a capital allowances specialist will maximise your capital allowances claim for “Plant and Machinery Fixtures”. We have the detailed training, knowledge and experience to analyse cost information relating to commercial property. This is true whether it is a second hand purchase, new build or the development of an existing property.
The cost information for these projects can be presented in a way which does not make it easy to define what is covered within the costs presented. Add to this the fact that much of the cost maybe defined as structural which may qualify for a different type of capital allowance named “Structural and Buildings Allowances” or SBAs. SBAs have their own separate rules in terms of how quickly they may be utilised to reduce your tax bills.
However tempting it might be to not engage a specialist to save on fees the downsides of not doing so could be huge. Inevitably claims could either be under calculated or overcalculated. This means the tax benefits are either reduced or if overcalculated opens the door to the possible clawback of tax and interest charges and penalties being levied. Also if an inflated claim has been made then HMRC will not only demand the repayment of the tax with interest they may impose a fine due to your negligence. Ultimately it is the taxpayer who has to take responsibility for the information in their tax returns.
How to Access Our Services
You can access our initial advice free charge in a number of ways:-
- email us using info@curtisplumstone.com
- complete our contact form
- for a specific project you can complete our Capital Allowances Estimate Form
To read more about how to choose a capital allowances claims specialist click our post here
Serviced Accommodation – Does it Qualify for Capital Allowances?
In recent years there has been a steep increase in the purchase of property labelled as “Service Accommodation”. This has also been accompanied by a number of, self proclaimed, experts offering training. Unfortunately the message given in some cases is that running “Serviced Accommodation” is a means of being able to avoid the usual capital allowances restrictions for residential property and other onerous requirements.
The truth is there is no reference specifically to “Serviced Accommodation” within the Capital Allowances Act 2001 and therefore it does not automatically qualify. As a reminder the Capital Allowances Act states that subject to other qualifying conditions, the following may be able to claim capital allowances:-
- Ordinary Property Businesses
- Trades
- Furnished Holiday Lets (FHLs)
The most relevant of the above for the owners of “Serviced Accommodation” is normally Furnished Holiday Lets (FHLs). Therefore when we are asked whether “Serviced Accommodation” qualifies for capital allowances we first look to see whether it meets the requirements of an FHL.
What are the Qualifying Requirements for FHLs?
If you want to read these in detail then see our previous blog on this subject. However as long as the Serviced Accommodation operates in the same way as an FHL the main tests will be around the availability for letting and the pattern of letting. Therefore the following minimum requirements need to be met:-
- the property needs to be available to let for 210 days per annum
- the property must actually be let for 105 days per annum
- there must not be a pattern of longer term letting within any financial year. Longer term letting is defined as any period of 31 days or more where the let is to the same person. If the total of these types of lets is 155 days or more in any financial year then the property cannot qualify as an FHL.
In our experience, it is the last bullet point above, which disqualifies many owners of Serviced Accommodation from claiming capital allowances. For many owners of Serviced Accommodation the certainty of long term lets, with a premium for rentals is their goal. However we believe it is not made clear to those who are entering the world of Serviced Accommodation that their property does not automatically qualify for a capital allowances claim.
What Could Go Wrong?
As we can see from the above there is a danger that an owner of “Serviced Accommodation” may mistakenly make a claim for capital allowances. Automatically making a claim for capital allowances without being aware of the facts is definitely a high-risk strategy. One where the legislation, past precedent and case law is not on your side.
If the owner gets it wrong they could be opening up themselves to penalties imposed by HMRC or a future discovery assessment. Therefore we would encourage anyone who is entering this area of property ownership and letting to contact us first for professional guidance.
Do Carpets Qualify for Capital Allowances Purposes?
One question which does seem to be asked quite frequently is whether you can claim capital allowances on carpets.
HMRC normally accepts both carpets and linoleum qualify for capital allowances as they are plant (see CA21200). The reference is slightly confusing as it does refer to carpets in the context of furniture but in practice carpets have always been accepted as being Plant.
As if to illustrate this point in the case of Anchor International Ltd v IR Commrs [2005] BTC 97 a huge synthetic carpet used for playing five-a-side football was held to be plant. However it should be noted ,generally, HMRC do not accept as plant, tiles which are stuck down. This does mean one grey area is that of stuck down carpet tiles which may be accepted by some HMRC Inspectors as qualifying but possibly not by others. The implication is that floor coverings which are permanently stuck down become part of the structure of the property and therefore do not qualify for capital allowances purposes.
Are you Missing the Bigger Picture?
You have obviously visited this page because you have or are planning to fit carpets in a building. However if you own the freehold of the building have you checked to see whether capital allowances have ever been claimed on the “plant & machinery fixtures in the property?”. This is where the majority of our work is concentrated because, it more often than not, produces large tax savings for our clients. If you own the freehold of a property or have a long leasehold then why not complete our “Free Capital Allowances Estimate Form” to ensure you are maximizing your property related tax relief.
Maximising Capital Allowances on Development / Refurbishment
Historically much of our capital allowances claims work has been on the purchase of second hand property. However we are being engaged more and more to maximise the capital allowances claimed on the refurbishment and / or redevelopment of commercial property. For example, at the time of writing we are undertaking a claim for the extensive refurbishment of a care home costing circa £350,000. The capital allowances claim on the original purchase of the property has already been completed so this is a new and additional claim. The capital allowances we are likely to be able to claim are in excess of £200,000 and as the owners are 40% tax payers in this case the tax benefit over time will be more than £80,000.
Why Make A Claim with a Specialist
Many property owners believe when they undertake improvements on their property their accountant will be able to analyse the invoices and extract the relevant capital allowances information. Unfortunately, although the accountant may be able to undertake this work, they rarely maximise the benefits of a claim. In many cases this is not the fault of the accountant but is due to two factors:-
a) The invoices are not detailed enough for the accountant to be able to analyse the qualifying from the non-qualifying expenditure
b) Due to the complexities of the legislation the accountant is, in many cases, unsure of what expenditure is claimable in the given circumstances.
I have had conversations with accountants in the past who have been honest enough to admit that they are only likely to be able to successfully claim 50% of any major refurbishment work. This can mean the client misses out on substantial relief.
Why Making a Claim Can Be So Worthwhile
When a company or individual(s) purchase a second hand commercial property the potential capital allowances claim for qualifying “fixtures” is arrived at by the means of a “just and reasonable apportionment” exercise. The cost of a second hand purchase can be broken down into theree elements namely:-
a) The purchase cost of the land.
b) The purchase cost of non-qualifying elements.
c) The purchase cost of qualifying elements.
Typically for the purchase of a hotel, care home or office the “fixtures” which qualify for capital allowances represent circa 25% of the overall purchase price. However if money is then spent on refurbishment or redevelopment of the property then 40% plus of this expenditure is likely to qualify for capital allowances purposes. The reason being the land has already been purchased and therefore additional expenditure is split just between qualifying and non-qualifying elements.
Don’t Forget the Annual Investment Allowance
The Annual Investment Allowance is currently set at £500,000 i.e. this level of capital allowances may be able to be claimed in any single financial period. However this is only possible where the relevant tax returns are open for amendment This means it is important where qualifying expenditure is incurred on refurbishment of a property that the analysis for capital allowances purposes is undertaken soon after completion of the works. With bigger projects it may even be beneficial for the capital allowances analysis to be undertaken as the work is progressing especially if the project crosses over financial periods.
This means from a tax perspective there has probably never been a better time to develop / refurbish commercial property provided the owners engage the services of a specialist such as ourselves to help them maximise their capital allowances claims.
Capital Allowances Claims a must for Care & Nursing Home Owners
In a previous blog post we pointed out how financially beneficial a capital allowances claim could be for Hotel owners. Much of the information supplied in this previous blog is also relevant to Care & Nursing Homes whether owned by individuals or larger limited companies. This is because both Hotels and Care / Nursing Homes contain many of the same types of claimable “Plant & Machinery” for capital allowances purposes.
Care / Nursing Homes contain Plant
- Lifts
- Electrical Systems
- Catering Equipment
- Air-conditioning
- Heating & Ventilation Systems
- Sanitary equipment including toilets, baths and showers
- Signs
- Emergency Lighting
- Telephone & Wi-Fi Systems
- Fire detection equipment
- Hot & cold water system
Additional Plant
In addition to many of the common items found in other commercial property care / nursing homes homes contain items which are not commonly found in other buildings. Some of these include:-
- Emergency Call Systems
- Medical Equipment and Systems
- Electric Hoists and Bathing Aids
- Reception Desks
Making a Capital Allowances Claim
As a general rule the level of capital allowances claimable for a care / nursing home will fall between 20% to 30% (possibly more) of the original purchase price of the property. Although if an extensive development or refurbishment work has been undertaken this percentage can increase dramatically when the costs of purchase and refurbishment are added together. We have successfully completed a number of recent claims on care and nursing homes where the original purchase prices have ranged from £400k to £2m. The results of some of these capital allowances claims are detailed on our case studies page. If you own a care or nursing home (or you have clients who do) then please contact us for a free capital allowances claims estimate
To see Case Studies relating to Care and Nursing Homes you can click here
Key Takeaways
- Capital allowances claims can significantly benefit Care and Nursing Home owners, similar to Hotel owners.
- Common claimable items include lifts, electrical systems, catering equipment, and heating systems.
- Unique items for Care/Nursing Homes such as medical equipment and emergency call systems are also claimable.
- Typically, claims range from 20% to 30% of the property’s purchase price, potentially increasing with refurbishment costs.
- For a free estimate on capital allowances claims, owners should reach out for a consultation.
Judging by the searches on our website the most popular topic at the moment is Section 198/199 Tax Election Agreements. This is not surprising given that there have been changes in the capital allowances regime which came into effect in April 2012 with even more far reaching changes on the way in April 2014 (see our previous blog) Download our prefered Section 198 Election Template here.
The Importance of the S198 Tax Election Agreement
If and when a commercial property comes to be sold the seller may or may not have claimed capital allowances on the plant & machinery “fixtures” within the property. Where there has been a claim for such “fixtures” the S198 Election Agreement must, amongst other things, contain sufficient information as to provide the details of which fixtures have been claimed and the value at which those “fixtures” are being transferred to the buyer. There are two important points to note here namely:-
i) by identifying the “fixtures” on which capital allowances have been claimed it also by default may help to identify “fixtures” which may not have been subject to a claim. This is why it should not be assumed, as shall be demonstrated later, that because the sale contract contains a tax election agreement that a further claim for capital allowances may not be possible.
ii) where “fixtures” have been claimed the values allocated to them are the disposal values for the purchaser which must be brought into account and the acquisition value for the buyer which will again be brought into their accounts.
S198 Tax Election – Case Study
The importance of the S198 Election Agreement being completed correctly can be illustrated by the following real life example. We were contacted by the prospective buyers of a £1m commercial property in London. They had been advised by their accountant to seek specialist advice on the capital allowances situation before completion. This in itself is a concern because it would appear that the advice did not come from their conveyancing solicitor who would be best placed to offer this advice.
We obtained a copy of the draft contract for the sale of the property and it did indeed include a S198 Election Agreement. However none of the “fixtures” which it was sup[posed to apply too were listed and further more everything had been valued at £nil. We informed the prospective buyers that potentially, in their hands, there were between £200,000 t0 £300,000 of capital allowances to be claimed and therefore it was imperative that the “fixtures” which had been previously claimed were identified and there transfer value negotiated.
The Benefit of using a Capital Allowances Specialist
To cut a long story short we were asked to speak to the “vendors” accountant on behalf of the purchaser and it was apparent that the purpose and importance of the S198 Election Agreement was not understood. We eventually established there had only been a very limited capital allowances claim for “fixtures” and eventually after much discussion and numerous e-mails the relevant “fixtures” were identified within the S198 Election Agreement at a low “Tax Written Down Value” (TWDV). Unfortunately this led the “Vendors” solicitor to comment that the the subsequent benefit for the “Buyer” was going to be minimal. In-fact the potential overall tax benefit is likely to be in the region of £50,000 for the buyer as we are now free to claim on a multitude of fixtures not claimed for by the seller.
Conclusion
It the above scenario, had we, or another capital allowances specialist not become involved the original S198 Election Agreement could well have been interpreted by HMRC as meaning that all “fixtures” were included and therefore all valued at £nil for disposal purposes. This would have prevented us from making a substantial claim for the buyer.
The importance for accountants and solicitors to understand the issues around both S198 (freehold) or S199 (leases) Tax Election Agreements has never been higher. The need to understand them will grow even more in April 2014 when a capital allowances review should become an integral part of any Commercial Property transaction.
Key Takeaways
- The main topic is Section 198/199 Tax Election Agreements, particularly with changes to capital allowances since April 2012.
- The S198 Tax Election Agreement must specify claimed fixtures and their values for proper transfers during property sales.
- A case study illustrates the importance of correctly completing the S198 Election Agreement to avoid losing potential capital allowances.
- Involving a capital allowances specialist ensures proper identification of fixtures and maximises tax benefits for buyers.
- Accountants and solicitors need to understand S198 and S199 agreements as their importance is increasing, especially with future capital allowances reviews.
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