Lucy Mangan – Partner and Property Sector Specialist
There are many allowances and reliefs that can be claimed by companies in respect of capital costs but only if you are aware of them. Some are less well known and can be missed.
1 – Enhanced Capital Allowances (ECA’s)
ECA’s legislation was introduced to encourage the use of energy saving, low carbon and water conserving plant and machinery.
It provides a 100% tax deduction in the year expenditure is incurred and is in addition to the normal 100% deduction under the annual investment allowance (£1,000,000 from 1 January 2019 to 31 December 2020, falling to £200,000 thereafter)
This relief is ending in April 2020 so if you are planning on purchasing any qualifying items, it may be worth accelerating this if commercially viable to do so.
2 – Enterprise Zones (EZ’s)
This relates to specific areas and provides a 100% tax deduction for capital expenditure incurred by businesses within certain designated area.
The relief will be of particular advantage to those spending considerable sums on capital equipment.
This relief ends on 31 March 2020.
3 – Land Remediation Relief (LRR)
LRR provides extra tax relief above and beyond the costs. It enables companies that incur costs to clean up contaminated land with an additional 50% tax deduction on the qualifying expenditure.
The relief can be claimed by property investors and developers. Examples of contamination claims include, asbestos management, gassing measures, Japanese knotweed removal and removing oil or arsenic from the ground.
4 – Land Remediation Relief – derelict buildings
This relief applies along similar lines to the above, but is specifically aimed at facilitating redevelopment of land or buildings that have been derelict for 10 years. Qualifying costs include the cost of demolition.
If the enhanced deduction gives rise to a tax adjusted loss, the loss may be surrendered for a 16% repayable tax credit.
5 – Integral features – second hand commercial property purchases
Changes to capital allowances in 2014, means that where a second hand commercial property is acquired the seller and buyer must enter into an agreement to fix the value of fixtures within that property that qualify for plant and machinery capital allowances, otherwise no tax relief will be available to the buyer on those fixtures.
However, where no agreement is reached, if the seller first acquired the property before April 2008, it may be possible for the buyer to claim tax relief on the value of integral features within the building.
Integral features include:
- An electrical system (including a lighting system)
- A cold water system
- A space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system
- A lift, an escalator or a moving walkway
- External solar shading.
The value of an integral features claim may be considerable, especially as the annual investment allowance is available against this
6 – Structures and Buildings Allowance
In the 2018 Budget, the chancellor announced a new Structures and Buildings Allowance (SBA) which will apply to construction costs incurred on certain buildings. As always there are many details within the rules but in essence tax relief will be available where:
- qualifying costs are incurred,
- the property is a qualifying non-residential structure or building,
- the property is used for a qualifying activity,
- the costs are incurred under contracts entered into from 29 October 2018.
This is welcome news as this allowance will result in up-front tax relief, and therefore a cash flow advantage, to businesses looking to incur any construction costs.
The change means that the structural costs will now qualify for tax relief at 2% per year and the company is allowed to claim these over a period of 50 years.