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Capital allowances

A key tax issue for the property sector

It has been widely published that about 90% of UK commercial property transactions do not take full advantage of valuable tax relief capital allowance claims available on plant and machinery residing within the building. To give an idea of what is available, the average estimated value of unclaimed capital allowances per transaction is reported as being  £100,000.

It is unfortunate that one of the most beneficial tax claims in the UK is also one of the most overlooked. Simply put, it is such a specialised area that most accountants and solicitors only have the knowledge to scratch the surface of the potential claims available on purchase of a new building, or even to ask the right questions at contract stage.

At BKL, the first question we ask at pre-contract stage is “What about capital allowances?” This ensures we always get the maximum tax relief possible for our clients.

Relief is given at the highest marginal rate of tax. For an average commercial office building, the value of such allowances will vary between 15% and 45% of the acquisition price.  What is even more remarkable is that these allowances do not reduce the base cost of the property for Capital Gains Tax purposes.

Capital allowances can significantly increase the value of the property, as shown by this case study.

When buying a second hand property, to claim capital allowances the vendor of the property must normally also have claimed allowances and the vendor and purchaser must elect to transfer the allowances to the purchaser.  If this isn’t done, no allowances can normally be claimed.  These rules are explained in more detail in our briefing Claiming capital allowances on commercial buildings – the rules.

For more information or help from one of our property and real estate specialists, please contact us using our enquiry form.