Capital Allowances

Understanding Capital Allowances

Whilst depreciation is applicable for UK accounting purposes, at present there is no ability to depreciate assets for tax purposes (tax depreciation). Instead the UK tax regime provides some relief on investment in capital assets through Capital Allowances, which are governed by the Capital Allowances Act 2001 (CAA2001).

Capital Allowances enable UK taxpayers to obtain tax relief for expenditure on certain fixed assets. However, they are not always straightforward. There are different forms and rates of allowances available and these can be changed unexpectedly in the annual Budget statement or in new Finance Acts.

Tax Saving Opportunities on Property Transactions

Capital Allowances can achieve significant savings against income or corporation tax liabilities, and every property sector can benefit, even certain residential schemes. Anyone who spends money on property – owners, occupiers, investors and developers - can make use of tax reliefs in one form or another.

Capital Allowances relief should be built in to any property transaction, from new builds, alterations and refurbishment works to acquisitions and disposals of existing or ‘second hand’ property. And for some projects, more than one allowance may apply, so it is worth getting the right advice from the outset.

Capital Allowances provide an excellent opportunity to enhance tax claims but careful attention must be paid to the rules and to HM Revenue and Customs' interpretation of them, to preserve their value and benefit. Early advice is essential to properly assess the potential impact on a project.

Additional Tax Savings in over 80% of cases

Most accountants, surveyors and tax advisers have some knowledge of the Capital Allowances regime, but few have in-depth experience of both the tax legislation and the property and construction issues essential for optimising claims. This can lead to opportunities being missed.

In our experience, when we have been brought in to review a project, we have been able to identify additional tax savings in over 80% of cases.

The Structures and Buildings Allowance (SBA), introduced via the Autumn Budget 2018, does not include expenditure on the provision of capital allowances. Therefore, for tax payers to benefit from all of the available capital allowances relief and truly optimise their tax savings, they will need to undertake some form of detailed analysis of the project expenditure into the various forms of allowances relevant

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From our experience you’ll most likely be surprised at what we can achieve.