Investing in business premises? Act now to maximise your tax relief

Investing in business premises, whether buying a property or undertaking a significant refurbishment, can be an expensive business. Lessen the financial burden by maximising your tax reliefs on these costs.

Investing in your business premises can put a strain on your cash-flow, so it’s wise to ensure that you maximise your tax relief on the expenditure.

Most businesses are aware that tax relief is available on some capital expenditure through capital allowances but this can be a complex area. The good news is that there is potential for significant tax savings if allowances can be maximised.

What is eligible can be highly nuanced, so it's worthwhile obtaining professional advice for any significant development or refurbishment projects. There are also other lesser known capital expenditure reliefs which could be valuable to your business.

Annual Investment Allowance (AIA)

Businesses are entitled to a 100% deduction for their first £200,000 spent on assets (other than cars) which qualify for capital allowances.

Writing down allowances can then be claimed on additions not covered by the AIA.

The AIA is shared across companies that are both under common control and either share premises or engage in similar activities so optimising relief involves consideration of other group companies.

Fixtures

Although capital allowances can’t be claimed on land and buildings, some fixtures are eligible for relief.

In particular “integral features” (which include electrical, heating, air-conditioning and water systems) are eligible for capital allowances at 8% per annum.

Thermal insulation of an existing building can also obtain relief at the same rate.

Plant and machinery

A new build or refurbishment may also involve the installation of new plant and machinery which qualifies for an 18% writing down allowance.

Typical examples include:

  • Computer systems and data cabling
  • Security and fire safety systems
  • Signage Lighting etc. if used for the enjoyment of customers in the hospitality industry

Building alterations that would otherwise be considered ineligible may qualify if they are for the purpose of installing plant and machinery (for example concrete bases).

Energy and water saving plant

Certain energy and water saving items qualify for a 100% allowance without exhausting the AIA. Cooperation from the contractors in obtaining details of specific assets is important when identifying such items.

Commercial property purchases

When a property is bought or sold in order for the purchaser to secure capital allowances, both parties must make a formal election agreeing what proportion of the sale price they wish to attribute to the capital allowances pools. In general the seller will prefer a lower figure, whereas the purchaser will want a higher value. As both parties’ tax position will be affected by the election, this should be factored into any negotiations.

In 2012 the rules on fixtures were tightened so that, as well as making the election, the vendor must have pooled the qualifying expenditure in order for the allowances to be available to the purchaser.

Failure to act early on in the negotiation may mean that allowances are lost going forwards.

Land Remediation Relief

Businesses decontaminating land can take a deduction for the related expenditure (whether capital or revenue) in full, plus an additional deduction of 50%. Claims can be made in relation to:

  • Japanese knotweed
  • Asbestos
  • Other industrial pollutants

If this puts a company in a loss-making position then it is possible to surrender that loss for a cash payment, at a rate of 16%.

Repairs

Finally, it’s always worth remembering that all genuine like-for-like repairs of premises will be 100% deductible as a revenue expense. A detailed analysis of a building project may highlight items for which immediate tax relief can be obtained.

If you would like any more information on tax relief for capital expenditure please contact Judith Pederzolli (jpederzolli@pem.co.uk)

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Judith Pederzolli

Assistant Director, Business Tax
I am an Assistant Director in PEM’s Business Tax department. As well as providing general business tax advice I have a strong focus on property taxes, including Stamp Duty Land Tax and the Annual Tax on Enveloped Dwellings. Another of my specialist areas is advising on the direct tax issues facing charities and non-for-profit entities.

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