Caring for Your Cash Flow – Property Tax

The First Tier Tax Tribunal recently published its decision in Bowerswood House Retirement Home Limited v HMRC ref: 2015 UKFTT 0094 TC. This case should ring alarms for any care home owner - about the importance of taking sound professional advice.

The case concerned the second-hand purchase of Bowerswood House, complete with a swimming pool within the grounds.  The new owners commissioned a capital allowances claim in respect to their £940,000 purchase price.  However the firm that undertook the work didn’t appear to be familiar with long established ‘just apportionment’ principles of making capital allowances claims and sought to value the swimming pool on a lop-sided, rather favourable basis as well as claiming the ‘conservatory’ structure enclosing the pool as tax deductible.  The Tribunal rejected several spurious attempts to justify these aspects of the claim and held the conservatory was not eligible; leaving the home owners, no doubt, an expensive bill for representation at the Tribunal, and significantly less tax savings than their adviser claimed.

Whilst there are significant benefits to tax-payers in claiming these valuable allowances against their capital expenditure, it is important that professionally qualified advisers undertake the necessary site survey and valuation to underpin the capital allowances claim.  These specialist skills are rarely found in the ‘average accountancy practice’ as only a handful of the largest accountancy and surveying firms have dedicated capital allowances teams. 

Alun Oliver, Managing Director of Chartered Surveyors, E3 Consulting, advises “We act for a wide range of care home owners and operators – including those involved with social care, aged care and EMI (Elderly Mentally Ill) – and are currently advising a Care Group in Yorkshire on how to obtain the 5% reduced rate VAT on significant parts of their redevelopment expenditure as well as preparing their capital allowances claim.  Total tax savings will be in excess of £380,000 from their refurbishment expenditure of approx. £1.9m”. 

Currently tax-payers also benefit from accelerated relief from Annual Investment Allowances (AIAs), which give 100% relief.  However, AIAs are capped at £500,000 per annum for eligible expenditure incurred before 1 January 2016, meaning that a nursing home spending say, £1.5m should get all of the available savings in their current tax period.

As with Bowerswood House, second-hand transactions are eligible for allowances – but since April 2014 are subject to complex legislation known as ‘the New Fixtures Rules’ (NFR under s.187A/B CAA2001).  These rules mean that if certain actions aren’t undertaken by the vendor, then the purchaser might end up with NIL capital allowances”.

One of only a handful of true experts in this complex field of Property Taxation, E3 Consulting has recently been shortlisted as a Finalist in the 2015 Taxation Awards – the firm’s third nomination in the last five years.  Having won Best Tax Consultancy Team in 2011, “our team’s credentials in this specialist and complex area of property tax have independent validation – meaning our clients can be confident the tax savings promised will be achieved…without the need for litigation”. 

Published in The Carer - Spring 2015 Issue 19