When it comes to commercial property, capital allowances (CAs) offer a brilliant opportunity to offset qualifying expenditure against taxable income, unlocking hidden value and freeing up cash for reinvestment.
Yet, like any tax relief, the devil is in the detail. To make the most of it, you need to know the rules, seize the opportunities, and avoid the pitfalls.
So, how can you make your commercial property work harder for you? Here’s our guide:
WHAT ARE CAPITAL ALLOWANCES ON COMMERCIAL PROPERTY?
In simple terms, capital allowances are a way to claim tax relief on qualifying assets that are part of your property but essential for your trade or business.
Think of heating systems, air conditioning, or even lifts. They’re an integral part of the building but also essential for its use. By identifying and claiming these allowances, you can significantly reduce your tax liabilities.
But beware. Not all properties or expenses qualify, so understanding the key conditions is critical
3 KEY CONDITIONS TO CLAIM CAPITAL ALLOWANCES
To claim capital allowances on commercial property, you need to tick these boxes:
- Holding a Relevant Interest in the Land: You must own the property outright or have a leasehold interest that qualifies.
- Operating a Qualifying Trading Activity: This includes property income from renting out commercial spaces or running a business from the property.
- Incurred Qualifying Expenditure: Only certain costs are eligible, such as assets affixed to the building (e.g., plumbing, electrical systems, and security installations).
These are the basics and lay the foundation for any successful claim, but the real opportunities come when you dig deeper.
GOLDEN OPPORTUNITIES TO MAXIMISE YOUR CAPITAL ALLOWANCES
This isn’t just about ticking boxes, it’s about timing, strategy, and forward-thinking. Knowing where to look. Here are some of the best ways to make the most of your capital allowances:
- Buying or Selling? Get in early: Get a specialist involved early to ascertain the best strategy. Whether you’re buying or selling, optimising the allowances can be a win-win for both parties. Get the right contract wording in place pre-exchange/completion, and you’ll avoid leaving money on the table. More importantly, for any acquisitions post 1 April 2014, both buyers and sellers have a 2 year window from the date of completion to agree values. However, if capital allowances have not been discussed during negotiations, it will become difficult to get co-operation from the vendor post completion of the deal.
- Construction Costs: From fit-outs to refurbishments and even brand-new developments, capital allowances can apply to a wide range of costs. Make sure you’re identifying all qualifying expenditure during the build phase. Involvement whilst the project is live will enable co-operation and buy in from all stakeholders. This will substantially optimise total relief.
- Historical Expenditure Reviews: It’s never too late to look back on construction expenditure. Unlike other tax reliefs, there’s no set time limit for reviewing old capex, meaning you could uncover missed claims from years ago. The only condition is those qualifying assets still need to exist in an open tax return period.
COMMON MISTAKES THAT COULD COST YOU
Capital allowances can be a bit of a minefield. It’s easy to trip up if you’re not careful. Here are some common mistakes that could cost you:
- Non-taxable entities: Only UK-taxable entities can claim CAs. That means pension funds, government bodies, and charities are excluded.
- Expenditure Held as Stock: If you’re a property developer holding the property as trading stock rather than a fixed asset, CAs won’t apply.
- Residential Properties: Most residential properties don’t qualify. However, there are exceptions, such as furnished holiday lets, serviced apartments, and communal areas in student accommodation or apartment blocks.
- Vacant Properties Refurbished for Residential Use: If a commercial property is acquired vacant and then refurbished for residential purposes, it’s unlikely that a claim will be available on either the purchase or the refurbishment.
- Unagreed CA Values: If the buyer and seller don’t agree on CA values within two years of completing a transaction, you’ll likely lose the chance to make a claim altogether.
Avoiding these pitfalls is just as important as seizing the opportunities. It all comes down to planning and expert advice.
ADDING VALUE TO YOUR PROPERTY PORTFOLIO
At Cooper Parry, we’re here to make your capital allowances work smarter, delivering real value for your business. With a team of seasoned tax, legal, and financial specialists who live and breathe commercial property, we offer tailored solutions to fit your needs. Here’s how we can help:
Specialist Tax Advice
Our tax experts will dig deep to identify qualifying expenditure, prepare meticulous claims, and handle all the back-and-forth with HMRC. The goal? Securing your allowances as efficiently as possible, so you can focus on what you do best.
Property Transaction Support
Whether you’re buying or selling, capital allowances play a crucial role. We’ll step in early to ensure allowances are optimised, helping you maximise the financial benefits of your property transactions.
Historical Expenditure Reviews
Think you might have missed out on claims in the past? No problem. Our team can review your historical accounts, uncovering hidden opportunities to claim allowances and put money back where it belongs. Into your business.
Sustainability Advisory
ESG is no longer a “nice to have”, it’s a must. Our sustainability specialists will help you weave sustainable practices into your projects, all while unlocking valuable tax relief to align with your goals.
Let us take the complexity out of capital allowances and turn them into a win for your business.
MY FINAL THOUGHTS
Capital allowances on commercial property are a golden opportunity to reduce your tax bill and unlock hidden value. But getting it right takes knowledge, strategy, and the right support.
The team here can help you navigate the rules, seize the opportunities, and avoid the common pitfalls. Let’s work together to ensure your property investments deliver maximum value.
