It has been my experience that the availability of capital allowances is regularly overlooked by commercial property owners; be it those who own commercial property portfolios as investments, or those who own and occupy their own trading premises. (more…)
Businesses wanting to take advantage of the business premises renovation allowance (BPRA) should be aware that the scheme closes on 31 March 2017 for companies and 5 April 2017 for unincorporated businesses. Expenditure will only qualify for BPRA if it’s incurred before these dates.
BPRA was introduced as an incentive for business to tackle derelict shops and empty business premises and bring them back into use. Under the scheme 100% initial capital allowances can be obtained as a deduction against profits for the full cost of renovation in the year in which expenditure is incurred. For expenditure to qualify it must be incurred on or in connection with the conversion or renovation of a qualifying building into a qualifying business premises. A qualifying building for this purpose is an unused commercial building or structure or part of an unused commercial building or structure and the building must have been unused for 1 year before the work begins the building. The building must also be situated in an area which at the time of the conversion or renovation work began was designated as a disadvantaged area.
The Annual Investment Allowance (AIA) gives a business full tax relief in the year on qualifying capital expenditure, up to a certain amount.
AIA has recently been rather generous, and is currently £500,000. From 1 January 2016 however, it is going down to a lower rate of £200,000. This new lower rate is expected to be a permanent change, giving a little more certainty than we’ve had in recent years from the UK Government.
For companies with a December year end, this is a straightforward change, however for any other company whose accounting period straddles 31 December, there are transitional rules which will have to apply.
There are two main factors that should be taken into account in this situation:
The tax relief available on fixtures is potentially very valuable. Not only is it an area of tax that is often poorly understood, but the tax rules are changing and the changes are significant.
In the past it was possible to buy a property and sort out the amount on which capital allowances could be claimed retrospectively. This is no longer the case.
Some transitional changes took effect in April 2012 and the full impact of the changes takes effect in April 2014. The changes radically alter much of the tax planning that would have been appropriate previously, shifting the balance of power between sellers and buyers of commercial property.
How does it work?
All commercial property contains fixtures on which tax allowances can be claimed.
The tax allowances are given in the form of tax deductions know as capital allowances.