October 2008
Capital Allowances are one of the best kept secrets in the property sector. Many property owners think that they are nothing to do with them as they have not incurred the cost of installing plant, machinery or other capital equipment - not realising they can still claim the allowances and therefore significantly decrease their tax bills.
Likewise developers may think that Capital Allowances are something that the purchaser will have to deal with and simply look to the cheapest construction cost. The reality is that Capital Allowances should be of interest to anyone involved in commercial property.
From the 1st April 2008 the headline rate of Corporation Tax dropped from 30% to 28% and much of this fall has been clawed back by the Chancellor with changes to the Capital Allowances regime.
It is estimated that the changes announced reduce the allowances that can be claimed by in excess of £2 billion each year from April 2008. Not surprisingly these will have a disproportionate impact on property owners.
However it is estimated that over 50% of businesses continue to under claim Capital Allowances. The benchmarking tables below indicate the percentage of the total costs a business can generally claim.
Capital Allowances as a % of price paid* for buildings
| Building | % of price |
| Offices | 15 - 30% |
| Nursing Homes | 20 - 30% |
| Hotels | 20 - 40% |
| Retail | 0 - 5% |
* Subject to former owner claim restrictions
Capital Allowances as a % of build costs
| Building | % of build costs |
|
| Plant | Repairs |
| Refurbishment | 50 - 70% | 12 - 20% |
| Fit-Out | 50 - 90% | |
| Hotels | 20 - 40% | |
| Retail | 0 - 60% | |
For the investor Capital Allowances allow tax bills to be reduced and increase cash flow. If the initial investment in a building is reduced by virtue of paying less tax the yield increases.
For developers the saleability of a property can be enhanced in situations where the developer can demonstrate to a purchaser that the design and build - and records retained - will allow the investor to claim Capital Allowances. Where it can demonstrated that equipment installed meets the requirements of the Enhanced Capital Allowances regime the payback is significantly increased.
In the current property market we could suggest that any opportunity to enhance cash flow or improve the marketability of commercial premises is worthy of investigation.
ABOUT KINGSTON SMITH'S PROPERTY TEAM
Kingston Smith is one of the fastest growing top 20 firms of Chartered Accountants. Our property team have considerable experience in the sector and work with clients in development, construction, investment and management. We help these clients run their businesses more successfully by providing practical advice such as planning ownership structures to minimise their tax exposure, accounting services ranging from bookkeeping, management accounts to the preparation and audit of year end financial statements to improve financial efficiency and helping source alternative methods of funding.
To find out more about Kingston Smith's bespoke services to the sector click here
CONTACT US
Kingston Smith Property Team
Martin Muirhead +44 (0) 20 7566 3705
Heather Powell +44 (0) 20 7566 3811
David Benton +44 (0) 1708 759 701
David Montgomery +44 (0) 1737 781 545
Jonathan Seymour +44 (0) 20 8848 5531
Nigel Birch +44 (0) 1727 896 006
