Claiming capital allowances on commercial property (2024)

Claiming Capital allowances on commercial property

Claiming Capital allowances are a form of tax relief on capital expenditure generated when an individual, company or partnership buys or builds commercial property.

Capital allowances tax relief offsets the hidden expenditure in commercial property.

This can include certain fixtures and elements such as air conditioning, wiring, heating, lighting and security systems.

Making a capital allowances claim can offset these integral items against your tax bill.

Many landlords are now looking to invest in commercial property due to the Section 24 mortgage interest relief cap that affects residential property and the many types of legislation that go against landlords.

What are the basics of capital allowances on commercial property?

Capital allowances are a valuable form of tax relief if you own a commercial property.

It doesn’t matter how long you’ve owned it, or if you built it, you could still claim.

It applies to all properties across the commercial sector, and the relief often comes back in the form of a large rebate and an ongoing reduction in your tax bill.

You can own the commercial property either privately or as a limited company.

Capital allowances on commercial property can be utilised against profits immediately, making it a valuable form of tax relief.

The allowances are available to anyone incurring capital expenditure, either buying or building commercial property.

You can claim these allowances on certain purchases or investments and you can deduct a proportion of these costs from your taxable profits.

Tax relief may typically be available for between 15% and 45% of the cost of a commercial property.

Commercial property in the form of a warehouse would be at the lower end, while a care home or boutique hotel would be at the top.

For a company paying corporation tax at 19%, a £1 million property might yield a potential tax saving of between £28,500 (£1 million x 15% x 19%) and £85,500 (£1 million x 45% x 19%).

For individuals paying income tax at 45%, the potential tax saving could be up to £200,000.

What are the different types?

Different types of capital allowances on commercial property include Annual Investment Allowance (AIA), which you can claim against most plant and machinery except for cars not kept on the business premises.

AIA means a business can deduct the full cost of an item from its profits before tax and could claim up to £1 million.

Written down allowance – written down allowance cover items that do not qualify under AIA (such as cars) and any items beyond the AIA threshold.

First-year allowance – the final capital allowance encourages businesses to purchase energy and water-efficient equipment such as zero-emission vehicles.

As with any other capital allowances, you cannot claim anything on items you have bought through your property business to lease to other people, or that you are using within a property, you let out.

How do the value of fixtures affect a claim?

The value of the capital allowances comes from fixtures in the commercial property.

The term ‘fixture’ has a different meaning to fixtures and fittings, as used for accounting purposes.

The technical capital allowances definition is that a fixture is ‘plant or machinery that is so installed or otherwise fixed in or to a building as to become, in law, a part of that building.’

The term plant or machinery includes tables and chairs, computers and cars and more. But none of these items are fixtures.

The latter term includes plant or machinery that is fixed to the property in some way, such as toilets, lifts and general lighting.

Which items qualify for capital allowances?

Common items in buildings that will qualify for a commercial property capital allowances claim include:

• air conditioning systems (as integral features)
• burglar alarms, fire alarm systems & sprinklers
• carpets
• central heating systems including boilers and radiators (as integral features)
• cold water systems (as integral features)
• cupboards
• display equipment
• electrical installations (as integral features)
• fitted furniture
• gas systems (as integral features)
• hot water supplies (as integral features)
• lighting systems (as integral features)
• moveable partitions and shelving

Establishing the integral features before making a capital allowances claim on a commercial property is important to maximise the tax relief available.

How do embedded capital allowances work?

All commercial property holds embedded assets.

As the assets are embedded within the property, tax relief is available to you unless a previous owner has made a claim.

A significant proportion of a property purchase price can be claimed as ongoing tax relief or a tax refund.

Assets that attract greater relief include air-conditioning and water systems, as well as data cabling and lighting.

Are integral features included when claiming?

Integral features are included in a capital allowances claim, and the following can be added:

• Any moving walkways, such as lifts and escalators
• Hot and cool water systems
• Space and water heating systems
• Air-conditioning and air-cooling system
• Electrical systems, including lighting
• External solar shading

It is important to note that this is not an exhaustive list.

You can also claim capital allowances for things such as renovating business premises in disadvantaged areas, research and development, extracting minerals, patents, dredging, and structure and buildings.

Claiming Capital allowances on commercial property

Claiming Capital allowances are a form of tax relief on capital expenditure generated when an individual, company or partnership buys or builds commercial property.

Capital allowances tax relief offsets the hidden expenditure in commercial property.

This can include certain fixtures and elements such as air conditioning, wiring, heating, lighting and security systems.

Making a capital allowances claim can offset these integral items against your tax bill.

Many landlords are now looking to invest in commercial property due to the Section 24 mortgage interest relief cap that affects residential property and the many types of legislation that go against landlords.

What are the basics of capital allowances on commercial property?

Capital allowances are a valuable form of tax relief if you own a commercial property.

It doesn’t matter how long you’ve owned it, or if you built it, you could still claim.

It applies to all properties across the commercial sector, and the relief often comes back in the form of a large rebate and an ongoing reduction in your tax bill.

You can own the commercial property either privately or as a limited company.

Capital allowances on commercial property can be utilised against profits immediately, making it a valuable form of tax relief.

The allowances are available to anyone incurring capital expenditure, either buying or building commercial property.

You can claim these allowances on certain purchases or investments and you can deduct a proportion of these costs from your taxable profits.

Tax relief may typically be available for between 15% and 45% of the cost of a commercial property.

Commercial property in the form of a warehouse would be at the lower end, while a care home or boutique hotel would be at the top.

For a company paying corporation tax at 19%, a £1 million property might yield a potential tax saving of between £28,500 (£1 million x 15% x 19%) and £85,500 (£1 million x 45% x 19%).

For individuals paying income tax at 45%, the potential tax saving could be up to £200,000.

What are the different types?

Different types of capital allowances on commercial property include Annual Investment Allowance (AIA), which you can claim against most plant and machinery except for cars not kept on the business premises.

AIA means a business can deduct the full cost of an item from its profits before tax and could claim up to £1 million.

Written down allowance – written down allowance cover items that do not qualify under AIA (such as cars) and any items beyond the AIA threshold.

First-year allowance – the final capital allowance encourages businesses to purchase energy and water-efficient equipment such as zero-emission vehicles.

As with any other capital allowances, you cannot claim anything on items you have bought through your property business to lease to other people, or that you are using within a property, you let out.

How do the value of fixtures affect a claim?

The value of the capital allowances comes from fixtures in the commercial property.

The term ‘fixture’ has a different meaning to fixtures and fittings, as used for accounting purposes.

The technical capital allowances definition is that a fixture is ‘plant or machinery that is so installed or otherwise fixed in or to a building as to become, in law, a part of that building.’

The term plant or machinery includes tables and chairs, computers and cars and more. But none of these items are fixtures.

The latter term includes plant or machinery that is fixed to the property in some way, such as toilets, lifts and general lighting.

Which items qualify for capital allowances?

Common items in buildings that will qualify for a commercial property capital allowances claim include:

• air conditioning systems (as integral features)
• burglar alarms, fire alarm systems & sprinklers
• carpets
• central heating systems including boilers and radiators (as integral features)
• cold water systems (as integral features)
• cupboards
• display equipment
• electrical installations (as integral features)
• fitted furniture
• gas systems (as integral features)
• hot water supplies (as integral features)
• lighting systems (as integral features)
• moveable partitions and shelving

Establishing the integral features before making a capital allowances claim on a commercial property is important to maximise the tax relief available.

How do embedded capital allowances work?

All commercial property holds embedded assets.

As the assets are embedded within the property, tax relief is available to you unless a previous owner has made a claim.

A significant proportion of a property purchase price can be claimed as ongoing tax relief or a tax refund.

Assets that attract greater relief include air-conditioning and water systems, as well as data cabling and lighting.

Are integral features included when claiming?

Integral features are included in a capital allowances claim, and the following can be added:

• Any moving walkways, such as lifts and escalators
• Hot and cool water systems
• Space and water heating systems
• Air-conditioning and air-cooling system
• Electrical systems, including lighting
• External solar shading

It is important to note that this is not an exhaustive list.

You can also claim capital allowances for things such as renovating business premises in disadvantaged areas, research and development, extracting minerals, patents, dredging, and structure and buildings.