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Property: are you claiming your allowances?

Most people are aware that tax relief is available on the purchase of “plant and machinery”; when you buy a new piece of equipment for use in your business you can, very broadly speaking, claim relief for the cost against tax – sometimes a complete write-off is available in the year of acquisition if the expenditure qualifies for the “Annual Investment Allowance” of up to £50,000: otherwise relief is over a period of years at a specified rate of either 20% or 10% per annum on a “reducing balance” basis. So far so good.

More sophisticated people will be aware that “plant and machinery” is a term which covers more things than you would think: for example, when constructing a commercial building it is very likely that some elements, even though incorporated into the structure of the building, will qualify for capital allowances in their own right: and this is a “double dip” in the sense that claiming capital allowances on elements included in the cost of the building will not reduce the cost of the building for CGT purposes when you come to sell. Things which may qualify for tax relief may include the electrical system, cold water installations, water and space heating systems, air conditioning, lifts, fire alarms and sprinklers, burglar alarms, WCs / showers / washbasins… the list goes on.

Only the most sophisticated will be aware that the same principle applies to the purchase (as distinct from construction) of buildings. In principle, when you purchase a commercial building some part of the purchase price is as a matter of fact attributable to items of plant and machinery which are integral to the building: and in principle tax allowances can be claimed. Inevitably, the simple principle gets more complicated in practice. How do you identify the plant in the building? How do you know what value to attribute to it (Original cost? Replacement value? Depreciated cost? None of the above?) If the former owner has claimed allowances, the attributed value can be of significance to both buyer and seller and (within limits) the value can be fixed by joint election at a figure which HMRC are then required to accept. In our experience, such elections are often not given the attention they warrant within the context of property negotiations. And following a change in the rules last year, it will very often be the case that the range of items on which a purchaser can claim tax relief will now be very much wider than that on which the vendor has been able to claim: digging around in the detail may very well pay dividends in these troubled times.

For more about “plant in buildings” please contact help@bkltax.co.uk or your usual contact partner.