Refurbishing commercial premises can be a strategic move to enhance productivity, attract talent, and improve customer experience. But beyond the aesthetic and functional benefits, businesses should be aware of the significant tax reliefs available through capital allowances, which can substantially reduce the cost of refurbishment.
What are Capital Allowances?
Capital allowances are a form of tax relief that allows businesses to deduct qualifying capital expenditure from their taxable profits. This includes costs related to the purchase or improvement of assets used in the business, such as machinery, equipment, and certain building features.
What Refurbishment Costs Qualify?
When refurbishing a property, several types of expenditure may qualify for capital allowances:
Plant & Machinery
Includes items like furniture, IT equipment, security systems, and kitchen or bathroom fittings. These typically qualify for Annual Investment Allowance (AIA), offering 100% tax relief on up to £1 million of expenditure per year. For any expenditure over and above the £1m AIA limit, companies may also be able to claim full expensing which provides 100% tax relief, provided that certain conditions are met.
Integral Features
Such as electrical systems, heating, ventilation, and lifts. These may qualify for AIA or a 50% First Year Allowance, with the remainder eligible for a 6% writing down allowance on a reducing balance basis.
Structures and Buildings
Costs related to the building’s structure (e.g., walls, floors, roofs) may qualify for the Structures and Buildings Allowance (SBA), which provides 3% relief per year over 33 years.
Energy-Efficient Equipment
Certain green technologies may qualify for a separate 100% allowance, outside the AIA cap.
Repairs vs. Capital Improvements
Routine repairs (e.g., repainting, replacing broken windows) are fully deductible in the year incurred. However, improvements or new installations typically fall under capital allowances.
Making a claim
To claim capital allowances
- Identify eligible costs – Work with a tax advisor to categorise expenditure.
- Keep detailed records – Document all costs and asset types.
- Ensure compliance – Follow HMRC guidelines and legislation.
- Submit the claim – Include it in your company’s tax return.
Capital allowances can make a significant difference to the financial viability of a refurbishment project. With generous reliefs currently available, now is an opportune time to invest in your premises. However, these allowances are subject to change, so early action and professional advice are key to maximising your claim
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